Husky Energy’s hostile bid for MEG Energy may have failed, but the company could be set to acquire a different set of high performing assets in the same region, analysts with GMP FirstEnergy said on Thursday.
Oklahoma City-based Devon Energy announced earlier this year that it will either sell or spin off its Canadian assets: the 120,000 bbl/d Jackfish SAGD project — located nearby MEG Energy’s Christina Lake project — and 15,000 to 20,000 bbls/d of conventional heavy oil.
“Devon Energy noted on its Q1/19 conference call this week that it was well on its way to exiting Canada in a timely manner (its target is transact in 2019). Data rooms have been open for some time, with Devon noting discussions with multiple top parties and being ‘very encouraged’ by the discussions,” GMP FirstEnergy’s Mike Dunn wrote in a research note.
“While Husky has indicated that it walked away from its pursuit of MEG in part due to global economic uncertainty and curtailment enforcements in Alberta, we would be surprised if Husky did not take a hard look at these Devon assets, given that Jackfish’s thermal bitumen production is similar to MEG’s, and Devon’s vast conventional heavy oil land base in the Cold Lake region, where Husky owns a major pipeline system and has other acreage,” Dunn wrote.
GMP FirstEnergy estimates that Devon’s assets might fetch in the neighbourhood of ~C$4 billion, which would be a lot less than the ~C$6.5 billion implied bid price for MEG at the time it was announced (including net debt).
“Husky appears to us to have more than enough liquidity to pursue such a bid, and a relatively strong balance sheet,” Dunn wrote.