Cenovus's Foster Creek project in northern Alberta

Summary

  • Cenovus Energy Inc. (TSX: CVE) and Husky Energy Inc. (TSX: HSE) merger will create one of the largest refining companies in the country worth C$23.6 billion.
  • Canadian oil-sands producer Cenovus will buy Husky for approximately C$3.8 billion.
  • Consolidation brings a ray of hope for revival of the oil and gas sector making it lean and clean, by lowering costs.

 

Canadian oil-sands producer Cenovus Energy Inc (TSX:CVE) will buy Husky Energy Inc (TSX:HSE) for approximately C$3.8 billion. The all-stock merger will create one of the largest refining companies in the country worth C$23.6 billion, including debt. The consolidation brings a ray of hope for revival of the oil and gas sector that has been decimated by the ongoing COVID crisis and volatility in crude prices. The Cenovus-Husky deal is expected to close in the first quarter of 2021.

Through this consolidation, the companies are looking to optimize margins across the heavy oil value chain. It will further strengthen Alberta’s position as the market leader to meet the post-pandemic global energy demands. Post announcement of this deal, there has been an uptick in stock performance of both the Calgary-based companies, enrapturing current investors.

Economies globally are in a state of recovery and energy stocks, which were among the worst hit due to the Covid-19 breakout, are seeing an improvement. As travel restrictions tanked demand for oil and gas in the past months, the Canadian government and industries are now working on revival strategies to enable quick recovery. Demand for oil and gas is rebounding and this is expected to grow over the next decade.

Alberta province, which has been targeted by environmental activists for oil sands’ high emissions, is looking at harnessing its natural gas reserves to become an exporter of hydrogen, the clean burning fuel by 2040. This is now has made some investors wary and financial institutions to snap off ties with the industry. Consolidation is one the strategies suggested by market analysts for effective recovery of energy stocks.

Let us take a deeper look and study these two trending oil and gas stocks.

 

Cenovus Energy Inc. (TSX: CVE)

Current Stock Price: C$4.88

Cenovus Energy is an integrated oil company engaged in production of crude oil, natural gas liquids and natural gas in Alberta, with refining operation in the US. It is one of the most actively traded stocks on the TSX with a 10-day average volume of 4 million shares. Current market capitalization of the company is C$6 billion approx.

The stock witnessed an all-time low of C$2.27 on March 19, during the stock market crash due to the pandemic outbreak, and since then has been swinging between the occasional highs and low. The stocks have since rebounded by over 76 per cent.

Cenovus is currently down by 63 per cent year-to-date (YTD). Month-to-date (MTD) performance also saw a six per cent drop.

The stock holds profit to book ratio (P/B) ratio of 0.346 and profit-to-cash flow (P/CF) ratio of 6.90, as per details on the TMX data.

Until March 12, quarterly dividend payout of C$0.063 was offered by the company. However, with the pandemic disrupting its business activities, no dividend has been declared since.

 

CVE FINANCIALS

Cenovus will announce its third-quarter results on October 29.

The company reported net loss of C$235 million in the second quarter results (ending June 30, 2020), as compared to net earnings of almost C$1.8 billion in the same quarter last year. Net operating loss is C$414 million, as opposed to operating earnings of $267 million a year ago.

Total revenue of the company declined to C$2.19 billion in Q2 2019, from C$5.92 billion in the same period last year. Cash on hand at the end of the quarter stood at C$152 million, up from from C$64 million in the same quarter last year.

Net debt of the company stood grew to C$8.2 billion in Q2 2020 from C$7.4 billion in Q1 2020.

 

 

Husky Energy Inc. (TSX: HSE)

Current Stock Price: C$3.17

At C$3.18-billion market cap, Husky Energy Inc is one of Canada’s largest oil producers. It has a strong upstream portfolio comprising of heavy crude, bitumen, natural gas liquids and natural gas operating in Canada, the United States, Asia Pacific, and few regions in Atlantic.

As per details released by the two energy giants, Husky shareholders will get 0.7845 of a Cenovus stock and 0.0651 of a Cenovus share purchase warrant in exchange for each common share.

As the pandemic struct, Husky stocks witnessed an all-time price low of C$2.40 on March 19. The stock is on a rebound showing gradual growth since March.

The stock declined by 70 percent YTD. However, the MTD performance of the stock shows an uptick by 3 per cent. The stock holds profit-to-book (P/B) ratio of 0.218 and profit-to-cash flow (P/CF) ratio of 1.60. Quarterly dividend payout of C$0.013 with a yield of 1.57 per cent.

 

HSE FINANCIALS

While we wait for third-quarter results that will be declared by the company on October 29, here’s a quick glance at the second quarter results 2020. The company reported net loss of C$304 million in Q2 2020 as compared to net earnings of C$370 million in the second quarter of 2019. Total revenue of the company stood at C$2.37 billion as compared to C$5.23 billion in Q2 2019.

Husky’s loss from operating activities was C$323 million in Q2 2020, as compared to profit of C$230 million a year ago. Cash and cash equivalents as of June 30, 2020 stood at C$633 million, as compared to C$2,512 million in June 2019. Capital expenditures remain on track despite slowdown in the range of C$1.6 to C$1.8 billion.

 

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