Per sources, ConocoPhillips (COP - Free Report) is expected to divest its stake in Cenovus Energy Inc (CVE - Free Report) . The company had obtained the stake as part of an asset sale to the Canadian oil and gas producer in 2017.The companies declined to comment on any developments related to the divestiture.
In 2017, Cenovus Energy had purchased oil sands and natural gas assets from ConocoPhillips for C$17 billion. ConocoPhillips received the payment in the form of 208 million shares of Cenovus as well as C$14.1 billion. This made ConocoPhillips the biggest investor in Cenovus Energy. However, the company had stated that it did not plan to remain a long-term holder of Cenovus Energy’s equity.
ConocoPhillips had valued the stake at $9.41 per share, based on Cenovus Energy’s New York-listed stock at the time of the deal in 2017. Since the transaction closed on May 17, 2017, Cenovus Energy’s price has fluctuated widely, although it has consistently traded higher since April 25. The company’s shares have been treading north of late, courtesy of an oil price rebound and are up 24% in the last three months.
ConocoPhillips has held talks with investment banks relating to selection of advisors for the sale and might offer the shares to institutional investors. The sale is projected be completed in this month. However, the specific timing will depend on market conditions. If the sale is not concluded by ConocoPhillips in June or early July, it will then be carried out around September.
Based on Cenovus Energy’s current share price, ConocoPhillips’ stake is valued at about C$2.6 billion ($2 billion) and the sale is likely to happen at a small discount. The transaction will be one of the biggest Canadian equity share sales in 2018.
Over the past two years, ConocoPhillips has been aggressively selling assets and cutting costs to lower debt and boost dividend. In 2017, the company divested assets worth $17 billion.
The deal is similar to the overnight stock sale by Royal Dutch Shell Plc (RDS.A - Free Report) in May, where it sold its entire stake in Canadian Natural Resources Ltd (CNQ - Free Report) for $3.3 billion. The overnight trades are usually discounted from current price levels to entice investors. In order to make the sale useful, ConocoPhillips will need Cenovus Energy’s value at a position where it is making profit even after the discount.
ConocoPhillips has returned much of the proceeds it has raised recently to shareholders. The company hiked its dividend by 8% in the first quarter to 28 cents and intends to buy back $2 billion in shares in 2018.
In the past three months, ConocoPhillips’ shares have gained 25.7% compared with the industry’s 23.9% growth.
Zacks Rank & Key Picks
ConocoPhillips currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
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