EXCLUSIVE-Cenovus in exclusive talks with Teachers' fund on land assets -sources

Thu Jun 18, 2015 5:27pm EDT
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(Adds details from sources, background on deal)

By John Tilak, Euan Rocha and Scott Haggett

TORONTO/CALGARY, June 18 (Reuters) - Cenovus Energy Inc is in exclusive talks to sell Canadian oil and gas royalty lands to the Ontario Teachers' Pension Plan in a deal that could fetch C$2.5 billion to C$3 billion ($2.45 billion), according to four sources familiar with the matter.

The sources, who asked not to be named as they have not been cleared to discuss the matter publicly, said the discussions between Calgary-based Cenovus and Ontario Teachers, one of Canada's top pension fund managers and investors, are at an advanced stage.

Royalty lands are privately held oil and gas properties that are not subject to the royalties that producers pay to governments on publicly owned lands. Instead of paying royalties to governments, producers pay a mineral tax, while the royalties go to the property owners.

Two industry sources said that Teachers may look to partner with another player, given the size of the deal. In March, the fund manager said it was actively scouting for energy assets as it looks to trim positions in oil and gas derivatives and invest instead directly in producing assets.

Cenovus and Teachers declined to comment.

Shares of Cenovus rose 4.4 percent to touch a six-week high of C$21.57 following the news, and ended the day up 4 percent at C$21.51.

Cenovus's move to sell its 2 million acres of royalty lands, mainly in southern Alberta, has been closely followed by investors and comes about a year after Encana Corp raised over C$4 billion by spinning out similar properties in PrairieSky Royalty Ltd, which was one of the biggest spinouts in Canadian corporate history.   Continued...