This morning, CVE and BP announced that CVE will acquire BP's 50% working interest in Toledo for US$300mm cash, plus the value of inventory, subject to customary closing adjustments.
■ Transaction strategically important for CVE, but financially immaterial for both (<1% of CVE and BP's EV, respectively): This deal was largely anticipated, in our view, since: 1) CVE had recently acquired BP's 50% stake in Sunrise (the other side of the JV), which provides feedstock to Toledo (note); and 2) CVE management has mentioned on conference calls that it had a strong preference for operating its core assets, and that it considered Toledo core, with strong industrial logic.
■ Recall also that a major turnaround had just been completed at Toledo in Q2/22, which was likely a consideration in this transaction not being simultaneously announced with the Sunrise transaction, in our view.
■ The move from a 50% stake in Toledo to 100% gives CVE 80 mbbl/d of incremental refining capacity, including 45 mbbl/d of heavy refining capacity. This further strengthens its vertical integration and reduces its exposure to the WCS heavy oil benchmark, in our view. On closing, which is targeted for Q4/22, CVE will have 740 mbbl/d of total refining capacity.
■ Transaction metric appears fair: Although far from a perfect metric, the US $300mm transaction value, excluding the value of inventory, reflects US$335/bbl/ d/Nelson Complexity Index (NCI). Toledo's NCI is 11.2. This is relatively in line with two recent U.S. refinery transactions: 1) Shell's Puget Sound refinery at ~US $235/bbl/d/NCI; and 2) Shell's Deer Park refinery at ~US$350/bbl/d/NCI.
■ Is there a next step for downstream portfolio rationalization? CVE has a 50% ownership in Wood River (PADD II; Illinois) and Borger (PADD III; Texas) through its WRB partnership with Phillips 66 (PSX-N).
■ Since we believe CVE would rather own/operate these assets outright, or exit them entirely, we expect CVE to eventually transact on the two assets, with a preference for retaining Wood River, which is 55% geared to processing heavy oil. However, unlike Toledo, we have less confidence on the timeline for completion of these discussions, and any potential outcome.