Two of Us - The Multi-Billion-Dollar Merger of Canadian Giants Cenovus and Husky

On October 25, a major consolidation of two Canadian oil and gas companies was announced with the planned merger of Cenovus Energy and Husky Energy. The prospective consolidation will offer the opportunity for corporate-level synergies and, over the longer term, for the physical integration of some of the companies’ operations, especially in Alberta’s oil sands. In today’s blog, we discuss some of the more nuanced elements of the consolidation, including potential improvement in crude oil market access and the larger presence of the combined company in PADD 2 refining, a sector that has taken a major hit during the pandemic. This blog also introduces a new weekly report from RBN and Baker & O’Brien: U.S. Refinery Billboard.

Cenovus Energy is an integrated oil and natural gas company headquartered in Calgary, AB. It was formed when Encana Corp. (now known as Ovintiv) spun-off its oil-based assets into a separate corporation in 2009, allowing Encana to — at the time — focus on its natural gas assets. Cenovus produces oil in Canada and has refining interests in the U.S. The production assets include oil sands facilities at Christina Lake and Foster Creek (blue dots in Figure 1) and conventional operations at Marten Hills and Deep Basin (blue triangles). Notably, Cenovus announced this week that they have entered into an agreement to sell their Marten Hills oil assets to Headwater Exploration. In the U.S., Cenovus has a 50-50 partnership with Phillips 66 in WRB Refining, which has refineries in Borger, TX, and Wood River, IL (blue refinery icons).

Husky Energy is also an integrated oil and natural gas company based in Calgary. The company was founded in 1938 in Cody, WY, but relocated to Canada in 1946. Since then, the company has grown organically and through acquisitions of companies such as Mohawk Oil, Renaissance Energy, and the Canadian unit of Marathon Oil, as well as the purchases of Valero Energy’s Lima, OH, refinery and Calumet’s refinery in Superior, WI. Today, the company is majority-owned by Hong Kong billionaire Li Ka-Shing, the 30th-richest person in the world. Husky’s oil production assets include oil sands operations at Sunrise, Tucker, and Lloyd Thermal (green dots in Figure 1); conventional assets at Rainbow and Deep Basin (green triangles); and offshore production in the South China Sea (the Liwan project) and the Madura Strait in Indonesia (the Madura project; green offshore platform icons in inset map), and off the coast of Newfoundland & Labrador in eastern Canada (the White Rose project; green offshore platform icon on main map). Husky’s refining assets include the Lloydminster Upgrader in Saskatchewan and asphalt refinery in Alberta; the Superior, WI, refinery (which is currently shut down and under repair after a major explosion/fire in 2018), and two refineries in Ohio (Lima and the BP-Husky JV refinery in Toledo; green refinery icons).

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