Oil patch opportunities and longterm liabilities drove Teachers’ $3.3 billion deal with Cenovus

July 2, 2015 at 08:24 (Uncategorized)

Financial Post

Like many large institutional investors looking to offset the impact of chronically low interest rates on longterm liabilities, the Ontario Teachers’ Pension Plan set its sights on opportunities in Alberta’s oil patch when oil prices slumped.

That interest culminated in a $3.3-billion deal Tuesday in which Teachers’ will pick up the broad portfolio of oil and gas royalties held in the Heritage Royalty Limited Partnership subsidiary of Calgary-based Cenovus Energy Inc.

The deal has many of the characteristics Teachers’ and other large pension funds seek out to manage their longterm liabilities, such as providing recurring revenues over many years.

Royalty owners contract with oil and gas operators and are paid based on production. In 2014, HRP had revenues of approximately $320 million based on average production of approximately 14,800 barrels of oil equivalent per day.

The acquisition also offers Teachers’ a hedge against unexpected inflation because royalty property cash flows are correlated to…

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