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Cenovus nears sale of Alberta natural gas assets to pay down debt

File photo of Cenovus Energy operation.


A private company led by a onetime senior executive at Cenovus Energy Inc. is leading a bid to acquire a major Alberta natural gas property from his former employer, a deal that could be worth up to $600-million, sources say.

Torxen Resources Ltd., led by former Cenovus chief operating officer John Brannan, is said to be the front-runner to acquire the Suffield property according to industry and finance sources familiar with the talks.

The transaction would be the second for Calgary-based Cenovus as part of a slate of assets sales that could garner up to $5-billion, with proceeds earmarked for debt reduction following the company's takeover of ConocoPhillips Co.'s oil sands and Albertan deep-basin natural gas assets.

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A spokesman for Cenovus declined to comment on Monday. The company has previously said it intends to announce an agreement for Suffield before the end of September. It is being advised on the Suffield sale by BMO Nesbitt Burns Inc.

Mr. Brannan, chief executive officer at little-known Torxen, retired from Cenovus in 2015. Other Torxen people are former Cenovus employees as well. The startup has some financial backing from the global oil field service company Schlumberger Ltd., which has also been investing sizeable sums in production companies and projects in Nigeria, Argentina and the United States. A Schlumberger executive mentioned the interest in Torxen during a conference call in August.

Suffield, in southeastern Alberta, is known for shallow gas production as well as some oil output. Analysts have pegged its value at $450-million to $600-million. The initial base of operations for Alberta Energy Co., a forerunner to Cenovus, Suffield comprises about 400,000 hectares producing more than 26,000 barrels of oil equivalent a day.

Ian Young, a Torxen vice-president, said in an e-mail that the company does not comment on acquisitions and divestitures.

An acquisition by Torxen would make sense given its principals' experience with the assets, analysts say. The deal would offer instant cash flow, without the need for expensive deep drilling and hydraulic fracturing, as is popular with many gas producers.

It is among four major properties Cenovus put on the auction block, and has served notice that more may go up for sale. Early this month, it sold its Pelican Lake heavy oil holdings to Canadian Natural Resources Ltd. for $975-million. Two other sales, the Weyburn oil project in Saskatchewan and Palliser natural gas venture in southern Alberta, are slated to take place by year-end.

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Investors have criticized the company harshly for taking on the debt to fund the ConocoPhillips deal, the second largest ever in Canada's oil patch, and have expressed concern about risks of completing deals as the energy-industry downturn drags on. However, CEO Brian Ferguson has said he is confident that Cenovus will get the proceeds it has targeted.

In the months following the deal, Mr. Ferguson announced his retirement, a move said to have been hastened by the market reaction to the structure of the deal. Indeed the shares tumbled by nearly half by August, though have since recovered some lost ground. The stock rose 2 per cent on the Toronto Stock Exchange on Monday.

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