Cenovus Energy Inc. will delay its move into Calgary's soon-to-be-completed Brookfield Place east tower by a year as the oil price drop and resulting activity slowdown continues to rattle companies and the city's downtown office market.
Cenovus spokesman Reg Curren said the oil sands company was meant to take possession of its new offices at Brookfield Place late this year and move in early next year. But Mr. Curren said Brookfield Property Partners LP and Cenovus worked together to extend the move-in date in recognition that "our space requirements changed dramatically with the downturn of the past two years."
"Brookfield Place is a great building and we look forward to occupying a portion of the space in early 2019, about a year later than expected," Mr. Curren said.
It's unclear how the mammoth deal announced last week – that Cenovus will spend $17.7-billion to buy oil sands and Canada Deep Basin gas interests from its long-time partner ConocoPhillips Co. – will play into its Calgary staffing levels and real estate plans.
But the the goal remains to consolidate Cenovus staff in two prime downtown locations, the striking crescent-shaped Bow building and Brookfield Place – which builders say will be the tallest building in Western Canada when completed later this year. At the same time, Mr. Curren said Cenovus is looking to sublet some of its space in both buildings, as well as other offices leased throughout the downtown.
As energy companies have slashed activity and collectively shed tens of thousands of workers, they have been left with reams of unused office space in Calgary towers – including new builds planned before oil prices plummeted.
Downtown Calgary now has more than 10 million square feet of office space offered for rent or sublease. CBRE Ltd. predicts more than two million square feet of new, premium downtown office space will hit the Calgary market this year, including Manulife Financial Corp.'s 27-storey, 564,000-square-foot 707 Fifth development. The downtown office vacancy rate stands at 25 per cent and is expected to further increase.
Although optimism regarding a slow recovery had grown late last year and early in 2017 as Organization of the Petroleum Exporting Countries (OPEC) production cuts led to oil price increases, a new price drop this year means the jittery state of Calgary's energy-focused downtown office market continues.
Cenovus penned its agreement with Brookfield in 2013, when oil averaged near $100 (U.S.) a barrel.
But the oil producer, with more than 3,500 current employees, has cut about 1,600 jobs since oil started dropping in 2014. Last year, it became clear that Cenovus was trying to unload a significant amount of office space through subletting. Sources told The Globe and Mail that Cenovus is expected to occupy just half of what it planned to in the 1.4-million-square-foot Brookfield Place.
This week, Cenovus said it is trying to sublet space in seven downtown locations, including Brookfield, the Bow, and the Stock Exchange Tower – joining other Calgary-headquartered producers looking to sublet space, including MEG Energy Corp. and PetroChina Co. Ltd. subsidiary Brion Energy Corp.
Although its backers say it has nothing to do with the prevailing economic conditions, the opening of the eye-catching 60-storey, 760,000-square-foot Telus Sky building was also delayed to late 2018 – from an original completion date in 2017 – "to allow for greater construction efficiency."
Brookfield investor relations director Sherif El-Azzazi had no comment regarding the change of schedule for Cenovus. Brookfield also has plans for an additional office tower totalling roughly one million square feet to accompany the east tower. Last year, Brookfield said it is looking for an anchor tenant for the second building before it breaks ground there. Mr. El-Azzazi said there is no update on those plans.
In its year-end results for 2016, Cenovus noted its costs included a "$61-million non-cash expense related to office building leases in Calgary that exceed Cenovus's current and near-term requirements," but the company did not provide further details.
"Due to the downturn and related workforce reductions, we no longer require the amount of office space we had forecast when commodity prices were higher and our oil sands operations were expanding at a faster pace," Mr. Curren reiterated in an e-mail.
"Cenovus is managing its entire real estate portfolio to proactively meet the long-term, future needs of the organization and its employees and at the same time maintain the resiliency of our strong balance sheet."
While all eyes were on the massive deal with ConocoPhillips last week, Cenovus investors are also anxiously looking toward an investor day in June – when the company will update expansion plans for its Foster Creek and Narrows Lake oil sands sites.
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