Cenovus to get Prairies’ biggest ethanol maker in Husky sale

Plants can take up to 750,000 tonnes of wheat, corn, rye per year

Husky Energy’s ethanol plant at Minnedosa, Man., about 45 km north of Brandon. (HuskyGrain.com)

A proposed takeover of Husky Energy by Cenovus Energy is expected to create not only Canada’s third-biggest oil and gas producer but also a new owner for the Prairies’ biggest ethanol business.

The two Calgary companies on Sunday announced a friendly all-stock deal which would see Husky shareholders get 0.7845 of a Cenovus share — plus 0.0651 of a Cenovus share purchase warrant — for each Husky common share, giving Cenovus and Husky shareholders 61 and 39 per cent ownership of the combined firm respectively.

The deal is already approved by both companies’ boards and is expected to close in the first quarter of 2021, pending approvals from both sets of shareholders as well as federal regulators and Alberta’s Court of Queen’s Bench.

Cenovus Energy, which will keep its name after the merger, said Sunday the deal “will unlock market opportunities by uniting high-quality and low-cost oil sands and heavy oil assets with extensive midstream and downstream infrastructure.”

“The integration of Cenovus’ best-in-class in situ oil sands assets with Husky’s extensive North American upgrading, refining and transportation network and high netback offshore natural gas production, will create a low-cost competitor and support long-term value creation,” current Husky CEO Rob Peabody said in a release.

The deal will also make Cenovus the biggest producer and seller of ethanol and dried distillers grains with solubles (DDGS) in Western Canada, as it gives the combined company control of Husky’s biofuel production plants at Lloydminster, Sask. and at Minnedosa, Man., about 45 km north of Brandon.

Husky’s ethanol assets were not specifically mentioned in Sunday’s announcement. However, a Husky Energy representative confirmed via email Tuesday they will be part of the announced deal.

The Lloydminster plant was commissioned in 2006, while the Minnedosa plant, first put up in the early 1980s, underwent a major expansion in 2008. Each of the two plants today has throughput capacity to produce 150 million litres of ethanol and 130,000 tonnes of DDGS per year, taking up to 375,000 tonnes of feed grain.

The two plants have made Husky the single largest consumer of feed-grade high-starch wheats in Western Canada, the company has said previously, noting the Minnedosa plant today takes mainly corn but also contracts for feed wheat and rye.

Husky markets its DDGS through the feed processing arm of U.S. ag and chemical firm Wilbur-Ellis as a high-protein, non-animal-based supplement for cattle feedlots and dairy, hog and poultry operations.

Cenovus and Husky on Sunday said their combined oil and natural gas production will amount to 750,000 barrels of oil equivalent per day, while their total North American upgrading and refining capacity would be about 660,000 barrels per day.

The two companies expect to reach about $600 million in annual corporate and operating synergies and $600 million in “annual capital allocation” synergies, most of those in their first year as a combined company, and “independent of commodity prices.”

Their expected savings would drive their combined corporate breakeven “well below levels that either company could achieve on its own,” Alex Pourbaix, Cenovus’ current and future CEO, said Sunday on a conference call.

That breakeven level, he said, would be a West Texas Intermediate oil price of about US$36 per barrel in 2021 and down to around US$33 per barrel by 2023. — Glacier FarmMedia Network

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