[ET Net News Agency, 2 October 2018] CK Hutchison Holdings' (00001) 40.19%-owned Husky
Energy Inc proposed to acquire all the outstanding shares of oil sand producer MEG Energy
Corp for C$3.3bn. The proposed consideration is C$11 per share in cash or 0.485 per Husky
share, meaning a 37% price premium on MEG's previous stock close.
Citi Research noted that CNOOC (00883) is one of the key shareholders in MEG, with a
12% holding.
Due to limited crude pipeline capacity, crude prices in Canada are at deep discount to
WTI (West Canadian Select is now US$30.8/bbl versus WTI of US$73.4/bbl), leading to weak
economics for oil sand produced in the country, the research house said.
With the Husky acquisition, the combined company could become vertically integrated,
with 410kboe/d upstream production and 400kboe/d of refining and upgrading capacity. This
could help to maximize the value of heavy crude oil in Western Canada, Citi said.
Despite the oil price being US$80/bbl, the economics of oil sand remain weak. With the
deep discount of crude prices in Western Canada, it is even more difficult for oil sand
producers to break even.
Citi thinks that Husky's proposed acquisition provides an excellent opportunity for
CNOOC to reduce its exposure in high-cost oil sand. (KL)