Rows of steam generating plants at Cenovus Energy's Christina Lake oil sands operation in Christina Lake, Alberta, Canada, June 12, 2013.Richard Perry/The New York Times
Cenovus Energy Inc., one of Canada's major oil sands firms, has turned to the market to raise at least $1.5-billion to help fund its already-reduced 2015 budget.
The company on Tuesday said it raised the cash from a bought deal, selling 67.5 million shares for $22.25 each. The fundraising drive could expand to $1.73-billion if demand exceeds the initial offering. Cenovus closed at $23.29 a share on the Toronto Stock Exchange Tuesday before the share issue was announced.
Cenovus is one of the first large Canadian energy companies to complete a major financing since oil prices started skidding at the end of June. The move demonstrates how even well-respected companies that have already taken steps to cut costs and protect their balance sheets are feeling the pressure of North American crude prices that have been cut in half since last summer.
"Cenovus intends to use the net proceeds from the offering to partially fund the company's previously announced $1.8-billion to $2.0-billion capital expenditure program for 2015, repay commercial paper outstanding as it matures, and for general corporate purposes," the company said in a statement.
Cenovus has already shelved some of its oil sands expansion plans. It is trying to sell or spin off its royalty-free properties in order to buffer its balance sheet. The bought deal may be a sign that it is unable to strike a deal on those acres, according to Laura Lau, a senior vice-president at Toronto's Brompton Funds. The bought deal, while showing investment bankers believe the market still has an appetite for oil sands firms, reflects the financial pressure Cenvous is facing.
"It is definitely not a good sign," Ms. Lau said. "It is kind of a sign of the times – they have one of the heavier balance sheets for an integrated [energy company]," she said. Cenovus had $5.5-billion of long-term debt at Dec. 31.
"They can't cut their budget much more," Ms. Lau added.
The Calgary-based firm last week cut 800 jobs, reducing staff by 15 per cent. It also altered its dividend reinvestment plan, allowing investors to take their payments in the form of shares issued at 3-per-cent discount rather than cash. The discount gives shareholders an incentive to accept the shares, allowing Cenovus to hold on to more of its money.
The company has room to cut another $500-million from its budget, according to Cenovus chief executive officer, Brian Ferguson. The forecast came last Thursday, when Cenovus revealed a fourth-quarter loss of $472-million or 62 cents a share, down from a loss of $58-million or 8 cents in the same period the previous year. Cenovus, at the end of January, cut its budget to between $1.8-billion and $2-billion, down from its Dec. 11 estimate of between $2.5-billion and $2.7-billion.
Cenvous pays investors a total of about $800-million a year in dividends. Mr. Ferguson last week said he would reduce spending before he would cut Cenovus's dividend. Scores of companies have trimmed dividend payments, cancelled expansion plans, laid off employees, and revised their 2015 budgets because of punishing oil prices.
The North American benchmark price for oil closed at about $53 (U.S.) a barrel Tuesday, compared to about $106 on June 30.
Brett Harris, a Cenovus spokesman, said the bought deal does not necessarily mean the company is having trouble selling its royalty-free land.
"You look at all of the tools in your tool belt and this one seemed like a good one at this time," he said of the $1.5-billion (Canadian) financing deal.
Royal Bank of Canada and Toronto-Dominion Bank are leading the bought deal's syndicate. In a bought deal, underwriters purchase the shares from the company, and then resell them to investors.
ARC Resources Ltd. in January raised $402-million in a bought deal where it sold 17.85 million shares at $22.55 each.
Meanwhile, Trinidad Drilling Ltd. on Tuesday slashed paycheques for its executives and board fees by 10 per cent. It is letting go roughly 20 per cent of its salaried staff. Employees are also taking a pay cut averaging 7 per cent across the company. The firm revised its 2015 budget, halving it to $175-million from $350-million. Trinidad has had to cut its day rates by between 10 and 20 per cent as oil and gas firms pressure it for lower fees.