UPDATE 2-Cenovus to sell royalty portfolio to Ontario Teachers' for C$3.3 bln

Tue Jun 30, 2015 8:18am EDT
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(Adds executive comments, background on deal)

By Euan Rocha

TORONTO, June 30 (Reuters) - Cenovus Energy Inc, Canada's second-largest independent oil producer, said on Tuesday it has agreed to sell its portfolio of oil and gas royalty properties to Ontario Teachers' Pension Plan for about C$3.3 billion ($2.66 billion).

"We believe this agreement captures significant value for Cenovus shareholders from our royalty and fee lands business," said Cenovus Chief Executive Officer Brian Ferguson. "This transaction will realize value that isn't currently reflected in our share price."

Calgary, Alberta-based Cenovus said the move will strengthen its balance sheet and offer flexibility to invest in growth projects.

As Reuters first reported this month, the decision to sell the unit, Heritage Royalty Ltd, to Teachers' Natural Resources Group (NRG) was made after exploring several options including an initial public offering.

For NRG the deal marks its first large bet on the energy sector. Teachers created NRG in 2013 to buy into real assets. In March, NRG bought a working interest in Weyburn Unit, a Saskatchewan-based oil asset, for C$153.4 million, marking its first energy deal.

Teachers' said the latest deal offers diversification benefits and a hedge against unexpected inflation.

Ziad Hindo, Teachers senior vice president, said the agreement was in line with an investment shift to "more direct and diversified energy sector holdings."   Continued...