Cenovus Energy is likely joining a growing list of Canadian energy companies who are selling their royalty assets as a way to shore up their balance sheets as crude oil and natural gas prices stay a relatively low levels. TD will advise Cenovus on the best way to liquidate their royalty assets, which Bloomberg reports could be worth as much as $1.6 billion. The most obvious buyers, are Freehold Royalties with a market cap of about $1.35 billion and PrairieSky with a market cap of about $4.80 billion. The Bloomberg article referenced below also mentions Franco-Nevada as a potential buyer. FNV has a market cap of $9.5 billion and probably has the most conservative and balanced portfolio of royalty companies, although its portfolio is focused on metals. Adding this much energy royalties to their portfolio I think would be a wise strategic move.
The royalty market should not forget about Canadian Natural Resources, who is studying a possible sale of its own royalty portfolio, which could be worth about $2.5 billion. I think a CNQ royalty sale will also depend on the price of energy and the way it will impact its own balance sheet. A lower price may force CNQ to gain more liquidity and with low interest rates, a royalty sale will look more attractive. If energy prices rise, CNQ might be more likely to hold their royalty assets as there will be less pressure on their balance sheet. Royalty investors might be hoping for lower energy prices with this scenario in mind since royalty investors might be able to pick up the best bargains a lower points in the energy market price cycle.