Athabasca Oil (TSX: ATH) has spent years sitting on one of Alberta’s largest oil sands resources. Valued at a market cap of $5.9 billion, ATH stock has returned more than 800% to shareholders over the last five years.
Last week, Cenovus Energy (TSX: CVE) announced plans to acquire its much smaller Canadian rival.
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Why Cenovus wants Athabasca Oil’s oil sands reserves
Cenovus valued the cash-and-stock deal at $5.7 billion or $12 per share. Cenovus CEO Jon McKenzie said the deal adds about 1.3 billion barrels of proven and probable reserves. He said that works out to a reserve life of roughly 75 years. Think of the deal as owning a gas station that will not run dry for three generations.
Cenovus has spent more than 20 years running steam-driven oil sands projects. McKenzie said the company has delivered more than 30 phased expansions over this period. These include projects such as Foster Creek, Christina Lake, and most recently, Christina Lake North.
Now Cenovus gets to apply the same playbook to Athabasca’s Leismer and Corner projects. The goal is to use less steam per barrel, spend less to add new output, and build faster than Athabasca could on its own.
McKenzie explained the strategy on the call, stating:
“One of the things that we find in this basin…..is you sometimes end up with these scenarios where companies own a significant resource and they’ve undercapitalized it over the years for a variety of reasons. And then we have the ability to come in and accelerate that growth.”
How Cenovus plans to grow Athabasca’s production by 2032
Athabasca’s thermal assets produce about 40,000 barrels a day today, which Cenovus says could almost triple by 2032.
- Notably, Cenovus expects Leismer output to rise above 60,000 barrels a day. It expects steam use per barrel to fall by 20%.
- For the Corner project, Cenovus aims for 40,000 barrels a day by 2032, about three years sooner than the current plan.
Cenovus expects to spend about $700 million to $800 million a year on these assets through 2030. Roughly $200 million of that spending will keep current production from declining. The rest pays for growth, mainly the Leismer expansion and an earlier start at Corner.
Corner still needs a green light. Athabasca’s September investor presentation says its sanction depends on details of Alberta’s new oil sands fiscal framework.
Cenovus also sees about $85 million a year in savings from lower overhead, financing, and shipping costs.
What the $5.7 billion deal means for shareholders
Cenovus says shareholder elections will set the final cash-and-stock split. At most, it will deploy $4.3 billion in cash toward the acquisition, which means issuing 32 million new Cenovus shares.
Cenovus ended September with about $3 billion in net debt and expects it to surpass $5 billion by the end of 2026.
CFO Kam Sandhar said that is well under 0.5 times net debt to adjusted funds flow at current futures prices. Cenovus also plans to keep its mid-BBB credit ratings.
The Canadian oil giant bought back 34 million shares in the third quarter. Sandhar said that already offsets the shares it will issue. The company expects the deal to add to adjusted funds flow per share in 2027.
Is Athabasca Oil stock a steal before the deal closes?
TH trades at $12.22, above the roughly $12 per share Cenovus is offering. If the deal closes on current terms, a buyer at $12.22 gets no premium and may be forced to book a loss. Some investors may be betting on a higher offer, which is not guaranteed.
The business is fundamentally strong. Athabasca has $62 million in net cash and about $2.1 billion in tax pools. It also projects about $1.5 billion in free cash flow from 2026 to 2030 if oil prices average US$70 a barrel.
But those gains now belong to Cenovus shareholders, making it the more interesting buy.
