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Jun 23, 2017

Cenovus downgraded by DBRS after ConocoPhillips deal

Cenovus Energy, Fort McMurray, Alberta

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CALGARY, ALBERTA -- Ratings agency DBRS on Friday downgraded Cenovus Energy Inc (CVE.TO), saying the Canadian oil company's acquisition of ConocoPhillips (COP.N) assets in March negatively affects its credit and more than outweighs the benefits of the deal.

DBRS rated Cenovus at BBB, down one notch from BBB (high), in what the oil company said was its first downgrade following the deal.

Cenovus' debt-fuelled US$13.3-billion purchase of ConocoPhillips' oil sands and natural gas assets in March sparked a near 50-per-cent fall in shares.

The company's aim to pay down debt to restore its once-pristine balance sheet now hinges on selling conventional oil and gas assets in a market with a shrinking pool of buyers as oil prices hit 10-month lows around US$42 a barrel.

Fund managers have said those efforts face a rocky road ahead.

DBRS said the trend for the company is negative with Cenovus facing execution risk and uncertainty in its planned asset dispositions and ability to sufficiently reduce financial leverage.

Cenovus spokesman Brett Harris said in a statement the lower rating is still of "investment grade," on par with assessments by Standard & Poor's and Fitch, which have not downgraded Cenovus.

"DBRS noted that the revision in their outlook partially reflects the overall current weak pricing environment," he said.

"DBRS also noted that it would consider changing the trend to stable if we complete our asset sales at or above the midpoint of our targeted range and we’re able to reduce debt."

Cenovus has said it would sell up to $5 billion of energy assets, an effort that fund managers have said is complicated by the surprise departure of Chief Executive Brian Ferguson, announced on Tuesday.