Cenovus's Christina Lake operations in northern Alberta (CNW Group/Cenovus Energy) — Photo courtesy Cenovus
Ontario Teachers' Pension Plan (Teachers') today announced an agreement with Cenovus Energy Inc. (Cenovus) to acquire Cenovus's wholly-owned subsidiary, Heritage Royalty Limited Partnership (HRP), which holds a broad portfolio of oil and gas royalties in Western Canada.
The transaction, led by Teachers' Natural Resources Group (NRG), values HRP at approximately $3.3 billion and is expected to close by the end of July 2015, subject to receipt of customary regulatory approvals.
HRP is Calgary-based with approximately 40 employees. It owns one of the largest packages of fee title acreage in Canada, consisting of approximately 4.8 million acres in Alberta, Saskatchewan and Manitoba. HRP also holds gross overriding royalties on 0.5 million acres at Cenovus' Pelican Lake and Weyburn properties, two large-scale, long-life oil projects. In 2014, HRP had revenues of approximately $320 million based on average production of approximately 14,800 barrels of oil equivalent per day (BOE/d).
Royalty property cash flows are correlated to the price of oil and natural gas, providing Teachers' investment portfolio with diversification benefits and a hedge against unexpected inflation. Royalty owners contract with oil and gas operators and are paid based on production.
Teachers' created NRG in 2013 to combine management of commodity derivatives plus physical assets including timberland, agriculture and oil and gas. Its portfolio includes a working interest in the Weyburn property operated by Cenovus that is recognized as the world's largest geological CO2 storage project.
"HRP has strong assets and operating partners generating recurring revenues that are an excellent fit with Teachers' need to pay pensions for the long term. This acquisition provides an attractive risk-return valuation and complements our investment approach, which is shifting to more direct and diversified energy sector holdings," said Ziad Hindo, Senior Vice-President, NRG & Tactical Asset Allocation. "We look forward to working with the HRP team and applying our collective oil and gas experience to responsibly pursue the business's growth potential."
About Teachers'
With $154.5 billion in net assets as of December 31, 2014, the Ontario Teachers' Pension Plan is the largest single-profession pension plan in Canada. It has earned a 10.2% annualized rate of return since its founding in 1990. Headquartered in Toronto, Ontario, its Asian regional office is located in Hong Kong and its European, Middle East and African region office is in London. An independent organization, it invests the pension fund's assets and administers the pensions of 311,000 active and retired teachers in Ontario. For more information, including our annual reports from 2014 and previous years, visit www.otpp.com.
