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Cenovus confirms it is in talks to sell royalty lands

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or investors, the royalty streams from the properties can offer exposure to oil and gas production free from the costs of finding and developing reserves, though payouts are contingent on the price of oil and gas.

Cenovus Energy (TSE:CVE), Canada's second-largest independent oil producer, confirmed it is in talks with a potential purchaser on the sale of its royalty lands.

“The company confirms it is in discussions with a counterparty with respect to a potential sale of the assets,” the Calgary-based oil producer said in a statement today. 

It didn’t identify the potential buyer and said there was no guarantee a deal will be made.

Shares of Cenovus, which have fallen 10 percent this year amid the slump in crude prices, rallied yesterday after Reuters reported the company was in talks to sell the land to the Ontario Teachers’ Pension Plan in a deal that could fetch roughly C$2.5 billion to C$3 billion. Shares were down 0.4 percent at $21.43 at 9:40 a.m. in Toronto today.

The assets are privately held oil- and gas-producing parcels of land not subject to the royalties that producers pay to governments on publicly owned lands. Instead, producers pay a government mineral tax, while royalties go to the property owners.

Cenovus said today there was no assurance any agreement will result from the discussions, and that it does not intend to comment again until a decision is reached.

Cenovus's move to sell its 2 million acres of royalty lands, mainly in southern Alberta, has been closely followed by investors and comes about a year after Encana raised over C$4 billion by spinning out similar properties in PrairieSky Royalty, which was one of the biggest spinouts in Canadian corporate history.

For investors, the royalty streams from the properties can offer exposure to oil and gas production free from the costs of finding and developing reserves, though payouts are contingent on the price of oil and gas.

The decision to sell is part of Cenovus’s plan to buffer the impact of the dramatic fall in North American crude prices. Other companies are making similar moves.

Earlier this year, Cenovus went to the market to raise at least C$1.5 billion to help fund its already-cut budget for 2015.

It has also hit pause on some of its oil sands expansion projects.

Cenovus is an integrated oil company. In addition to oil sands projects in northern Alberta, it produces natural gas and oil in Alberta and Saskatchewan. It also has 50 per cent ownership of two U.S. oil refineries.


Quick facts: Cenovus Energy Inc

Price: 11.96 CAD

TSX:CVE
Market: TSX
Market Cap: $14.7 billion
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