Pipeline Online: Cenovus sells Husky

Saskatchewan’s Energy News

Brian Zinchuk is editor and owner of Pipeline Online. Articles are used with permission.

Cenovus sells Husky gas station fleet to FCL and Parkland

By Brian Zinchuk

The Husky gas station in the centre of Estevan is just a couple blocks from the Co-op, seen in the bottom left corner. Photo by Katrina Zinchuk

SASKATOON, CALGARY – As far back as early 2019, Husky indicated it wanted to sell off its fleet of retail stations. On Nov. 30, that sale finally happened, to two different players.

A few things happened along the way. COVID-19 led to oil dropping into negative territory briefly, followed by a long climb back. Then Husky was bought by Cenovus in late 2020. So there were many stops and starts, but eventually, that fleet was sold. On Nov. 30, three companies – Cenovus, Federated Co-operatives Limited, and Parkland Corporation, all made announcements regarding the sale of that, and other assesses by Cenovus.

For Cenovus, it meant a total of $660 million in assets sold. Cenovus said in a news release from Calgary it had reached agreements to sell 337 gas stations in its Husky retail fuels network to Parkland Corporation and Federated Co-operatives Limited (FCL) for total cash proceeds of $420 million. Cenovus is retaining its commercial fuels business, which includes approximately 170 cardlock, bulk plant and travel centre locations. The transaction is expected to close in mid-2022, and is subject to approval under the Competition Act (Canada) and other customary closing conditions.

Cenovus has also entered into an agreement to sell its primarily Montney assets in Wembley for cash proceeds of approximately $238 million. Total production from this asset averaged approximately 3,200 barrels of oil equivalent per day in 2021, with about 38 per cent oil and natural gas liquids. This transaction is expected to close in December 2021, subject to customary closing conditions.

“This is another demonstration of Cenovus delivering on opportunities to continue to optimize our portfolio and unlock value from assets that will not attract significant investment in our business,” said Alex Pourbaix, Cenovus’s president and chief executive officer, in a release. “With these latest transactions, we now expect to realize more than $1.1 billion of total proceeds from sales announced in 2021.”

Federated Co-operatives Limited

Speaking from Saskatoon, FCL president and CEO Scott Banda said in a virtual news conference, “Federated Co-operatives Limited, on behalf of local co-ops in the cooperative retailing system, is investing $264 million to purchase 181 Husky retail fuel sites from Cenovus Energy. The acquisition is the largest in Co-op’s history, both in terms of dollars and number of sites.”

“The retail fuel sites include a mix of gas bars, on-site car washes and convenience stores. These sites will be transferred by FCL to several independent local co-ops across Western Canada. This will allow local co-ops to grow into new geographic areas and increase service offerings in their communities.”

Banda said it aligns with FCL’s vision of building sustainable communities, and re-affirms their commitment to Western Canada. Most of the acquisitions are in Alberta and British Columbia.

“We really are expanding into areas where currently our geographic presence is not as concentrated as Saskatchewan and Manitoba,” said Tony Van Burgsteden, FCL vice president of finance. He noted that a year ago, the last published numbers, FCL had $1.9 billion cash on its balance sheet, and that this deal was being paid for from cash on hand.

“By building on our network of gas bars, FCL can increase the use of the capacity of the Co-op Refining Complex in Regina, and the Co-op Ethanol Complex near Belle Plaine, Saskatchewan, by supplying this broader network of local co ops and independent fuel suppliers,” Banda said.

That refinery has a nameplate capacity of 130,000 barrels per day. However, Banda indicated it was not being utilized to its full capacity, and this deal would allow it to provide additional litres within the Co-op system. When asked about diesel shortages during recent winters, and if they had enough capacity to supply these additional stations, “Yes, is the short answer,” Banda replied. “We are not running at capacity, and haven’t been for a while. And there’s also some time here, as I said. This may not close until mid-2022 or later 2022, so we have time to prepare.

“But we’re also well aware that we’re in a declining market for fossil fuels. And this leaves us opportunity, as we look much beyond this year or next year, but into the future.”

Banda wouldn’t say how much excess capacity they have.

On of the reasons it will take so long to close the deal is the necessity of the Competition Bureau to rule on the deal, given its size.

In some situations, there are Husky and Coop or Tempo facilities in close proximity. In Estevan, for instance, the Husky, whose pumps were renovated in recent years, is just a couple blocks from the central Co-op. Asked about situations like this, Banda said. “The Estevan example is probably symptomatic of a Saskatchewan example.”

He noted the competition review will determine which sites remain within the transaction, or whatever dispositions may have to be made.

Burgsteden said, “The situation you’ve outlined varies across our geography. There are situations as you’ve described. And we would not want to preclude in any, way shape or form the work of the Competition Bureau. We know that they’ll do a thorough review. We fully expect that. And we have, throughout the course of this, you know, done some studies on sites that we may think might be at risk for the Competition Bureau to say, ‘Hey, you can’t keep both of those sites.’ But at this stage, we’re in the early stages of that, so we’ll let the Competition Bureau, as I said, do their review and see how that plays out.”

“There will be a mix of how these sites will be branded in the future,” Banda said. A number will be transferred to local co-ops, but others may remain as a Husky site for a short period, and FCL will simply supply those.”

Asked about labour implications, particularly if there are any unions involved, Banda replied that a number of sites are dealer-operated, and FCL will simply be suppling into them. A majority will go to local retail co-ops, and there are varying degrees of if their workforces are organized or not.

Most gas stations in Saskatchewan, no matter their brand, get their fuel from the Regina Refinery.

FCL vice president of energy Brian Humphreys said, “A great deal of the fuel in Saskatchewan is supplied by the Co op Refinery. But remember, these would be through exchange agreements. So, these wouldn’t be necessarily our litres. We would be exchanging them elsewhere, with other suppliers in our network across western Canada where we don’t have the refinery. So, these are incremental litres that will be supplied, and these are incremental litres to our volumes.”

When asked if the reduced demand on jet fuel due to reduced air travel impacted the refinery's capacity, Banda replied that they focus on gasoline and diesel, and don't produce jet fuel at the refinery.

Parkland

Parkland said it would acquire approximately 156 retail locations from Cenovus for total cash consideration of $156 million. This acquisition bolsters Parkland’s existing Canadian convenience retail network by adding retail locations in Greater Vancouver, Vancouver Island, Calgary, and the Greater Toronto area.

Parkland’s acquisition includes 109 company-owned sites and 47 dealer locations and is expected to add annual fuel volumes of approximately 400 million litres to its network.

“The acquisition is a unique opportunity to expand our coverage in markets where Parkland has an existing supply advantage and offsets a portion of our planned organic growth capital,” said Donna Sanker, president of Parkland Canada.