‘Huge value creation’: Cenovus-BP deal explained by oil industry expert

BP plans to sell its stake in Alberta’s oil sands to Cenovus Energy, making it the latest global energy giant to turn its back on the region. Cenovus, under the terms of the deal, will sell its part ownership of the Bay du Nord oil project off the coast of Newfoundland and Labrador.

Kevin Krausert is CEO and co-founder of Avatar Innovations, a Calgary-based venture capital firm and startup accelerator that pairs entrepreneurs with companies in Canada’s energy patch. He says the deal allows Cenovus to leverage its expertise in the oil sands, and lets BP to do the same in offshore drilling.

“I see this as a huge value creation opportunity for Cenovus,” Krausert told Yahoo Finance Canada’s Editor’s Edition. “BP does have a lot of core competencies in environmentally harsh offshore conditions. And so I really see this as an opportunity for both companies to drive value in their portfolio assets and sort of stick to their core competencies.”

Got a question for Kevin Krausert? Email Jeff.Lagerquist@yahoofinance.com and let him know what interests you in the world of clean energy and technology.

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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Video Transcript

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JEFF LAGERQUIST: We've got Cenovus doubling down on oil sands and BP walking away to expand its offshore oil portfolio. Before we get into BP expanding on the east coast, what does this transaction say about how each company views the oil sands?

KEVIN KRAUSERT: Well, first off, I think this was actually a really smart move by Cenovus. Cenovus has demonstrated that they can bring some of the most impressive cost reductions in the industry at its portfolio facilities and bring down it's lift costs down to single digits. That is a tremendous amount of value, if they can bring the same leadership and the same technology they've got of their other assets into their sunrise asset. So I see this as a huge value creation opportunity for Cenovus that really speaks to its corporate strategy.

It sees its enduring competitive advantage as being one of the lowest cost, lowest carbon oil producers in the world, which will benefit them very well as the world sort of moves on. [? Offer ?] [? Labrador ?] is a far riskier player in my opinion. It's environmentally harsh, there's a lot of development permits that need to be going.

It's a little more of an uncertain future. Whereas BP does have a lot of core competencies in environmentally harsh offshore conditions. And so I really see this as an opportunity for both companies to drive value in their portfolio assets and sort of stick to their core competencies. And I think that's part of a thread you're seeing across the industry, and speaks more to where the respective companies think they can drive value than it is in any sort of commentary about the oil sands.

JEFF LAGERQUIST: So I suppose it's sort of a do a few things right, rather than try and take a crack at every form of energy sort of thing.

KEVIN KRAUSERT: Yeah, there used to be this conversation around diversification, having many sources of supply. Whereas, I think what we're demonstrating in the oil sands is we've got very reliable, very secure source of energy for decades to come. And the companies that can extract as much value out of that by driving down costs, driving down their carbon emissions, are going to be well positioned for the future, where we start talking about energy security in a way that we haven't for many, many years.

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