Canada Stockwatch – Cenovus Energy Inc. (TSE:CVE, Mkt cap 19.24B, P/E 23.80, Div/yield 0.27/4.56, EPS 0.98, Shares 824.51M) is exploring the possibility of selling its royalty lands in Western Canada, hiring Toronto-Dominion Bank to advise on the process.
As Bloomberg reports, the Calgary-based firm may also go down the route of an initial public offering as it looks to monetize the royalty lands, located across Alberta, Saskatchewan and Manitoba.
Brett Harris, a spokesman for Cenovus, confirmed the move in an interview, with the energy company said to be seeking ways to offset the dramatic drop in oil prices. The decision comes only a couple months after a $1.5 billion share sale, initiated back in February.
The moves bears similarities to Encana Corp.‘s attempts to raise funds last May, in which it managed to accrue $1.46 billion in the initial public offering of PrairieSky Royalty Ltd. That was followed by a secondary offering of PrairieSky’s shares last September, raising a further $2.6 billion.
Cenovus, which split from Encana in 2009, boasts 3.1 million net acres of royalty lands, capable of producing the equivalent of 7,600 barrels a day. The properties netted the company $150 million in pre-tax operating cash flow, according to Shailender Randhawa, a Calgary-based analyst with RBC Capital Markets.
The value of the properties is somewhere between $1.5 billion and $1.6 billion, according to Randhawa’s estimates. He anticipates that other royalty companies like PrairieSky and Freehold Royalties Ltd. would be first in line to bid, whilst suggesting that mining royalty firm Franco-Nevada Corp. could also play a part.
Royalty companies operate by collecting payments from other energy companies that drill on their land, thus positioning themselves as attractive to investors because they are sheltered somewhat from crude prices.
Canada Stockwatch – in February Cenovus sold 67.5 million common shares to a group of underwriters for $22.25 each. The company says it will use the $1.5-billion proceeds to fund its plans to invest $1.8 billion to $2.0 billion in its oil sands projects and other operations in 2015.
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