| CALGARY, Alberta/TORONTO, April 24
CALGARY, Alberta/TORONTO, April 24 As Cenovus
Energy Inc prepares to release first-quarter earnings
this week, investors are looking for answers about a recent C$17
billion ($12.6 billion) acquisition that wiped out about a fifth
of its market value.
Disgruntled shareholders will grill Cenovus at an annual
meeting on Wednesday following results about its purchase of
most of ConocoPhillips' Canadian oil and gas assets.
The deal ramped up Cenovus debt and pushed it into the
largely unknown territory of natural gas, effectively doubling
the size of the Canadian oil company.
Some investors have questioned whether Cenovus overpaid for
the assets at a time when foreign oil majors are retreating from
the high-cost and heavily regulated Canadian oil sands
"It's very much going to be a show-me story," said Mike
O'Brien, managing director and head of the Core Canadian Equity
team at TD Asset Management, a shareholder. While the deal's
long-term logic is sound, it is still a question of whether the
company can properly execute its plan, he said.
Analysts expect Cenovus to post a loss of C$0.09 per share
for the January-March quarter, compared with a C$0.14 per share
loss a year ago, according to Thomson Reuters data. The company
had higher-than-expected production for the first quarter and
benefited from higher oil prices, Royal Bank of Canada analysts
Apart from the debt taken to fund the ConocoPhillips deal,
investors are concerned about Cenovus' move to diversify into
natural gas with the purchase of Deep Basin assets and its
ability to divest to pay for the assets.
Benoit Gervais, portfolio manager at Mackenzie Investments,
which owns Cenovus shares, said the company had no history or
track record in conventional gas. "I estimate they've overpaid
by about C$5 billion," he said.
Cenovus shares fell 13.8 percent last month on news of the
deal in their biggest ever single-day drop. The stock has since
fallen another 5.6 percent.
Buying Deep Basin flies in the face of the very identity of
Cenovus, which was spun-off from predecessor Encana Corp
to focus on crude, said one investor, who spoke on
condition of anonymity as the person was not authorized to speak
publicly on the issue.
Still, the deal has some backers. Canada's oil-rich Alberta
province, which holds a position in Cenovus through a government
investment firm, said the company remained a good bet.
Asked about investor concerns, a Cenovus spokesman referred
to Chief Executive Brian Ferguson's comments this month that the
company had a "solid plan" to finance the transaction and cut
debt using increased cash flow and assets sales.
Cenovus may sell parts of Deep Basin, RBC analysts said, a
move that would please investors who balked at the purchase.
While the transaction itself does not require a vote, some
shareholders may use Wednesday's meeting to express opposition
to the deal by voting against company nominations for the board
Cenovus reports earnings the same week as other Canadian
crude producers including Suncor Energy Inc, Crescent
Point Energy Corp and Exxon Mobil Corp-owned
Imperial Oil Ltd.
(1 = 1.3486 Canadian dollars)
(Editing by Denny Thomas and Andrew Hay)