Cenovus Energy CEO Brian Ferguson speaks at the annual meeting in Calgary on April 24, 2013. The strategy embarked upon three years ago to become more integrated “improves the stability of our overall corporate cash flow,” Mr. Ferguson says.Chris Bolin/The Globe and Mail
Cenovus Energy Inc. has hired bankers to explore the possible sale or initial public offering of its royalty lands in Western Canada.
The royalty lands, located across Alberta, Saskatchewan and Manitoba, could fetch as much as $1.6-billion in a sale, according to one analyst's estimates.
Cenovus has retained Toronto-Dominion Bank to advise on the process, Brett Harris, a spokesman for the Calgary-based company, said in an interview.
The decision to monetize the properties comes after the dramatic drop in oil prices affected Cenovus's business. Cenovus raised $1.5-billion in a share sale in February as it sought to weather the slump.
Last May, Encana Corp. spun off its own royalty lands, raising $1.46-billion in the initial public offering of PrairieSky Royalty Ltd. An additional $2.6-billion was raised in a secondary offering of PrairieSky's shares last September.
TD, Canada's second-biggest bank, also led the PrairieSky offerings.
Cenovus, spun off from Encana in 2009, has 3.1 million net acres of royalty lands that produce the equivalent of 7,600 barrels a day. The properties also produced $150-million in pretax operating cash flow for the company, according to Shailender Randhawa, a Calgary-based analyst with RBC Capital Markets.
Potential buyers
Randhawa estimates the value of the properties at between $1.5-billion and $1.6-billion. He said potential bidders would include other royalty companies like PrairieSky, Freehold Royalties Ltd., or mining royalty firm Franco-Nevada Corp. It may also draw bids from pension plans or private equity players.
Royalty companies collect payments from other energy companies that drill on their land, and remain attractive to investors because they are buffered somewhat from crude prices.
Freehold, for example, agreed to buy two royalty packages last week from Penn West Petroleum Ltd. for $321-million.
"If you own the land, it's a real estate/finance company," Randhawa said. "It's hard to lose a dollar."
Canadian Natural Resources Ltd. has also said it will look to sell or spin off its own royalty lands in 2015. Those properties could be worth as much as $2.5-billion, according to an estimate from Canaccord Genuity.