Cenovus Energy (CVE) to Sell Heritage Royalty LP in $3.3B Deal

Cenovus Energy (NYSE: CVE) has reached an agreement to sell Heritage Royalty Limited Partnership (HRP), a wholly-owned subsidiary, to Ontario Teachers' Pension Plan (Teachers') for gross cash proceeds of approximately $3.3 billion. HRP holds approximately 4.8 million gross acres of royalty interest and mineral fee title lands in Alberta, Saskatchewan and Manitoba. In the first quarter of 2015, HRP had associated third-party royalty interest volumes of approximately 7,800 barrels of oil equivalent per day (BOE/d). Additional royalties have also been added to HRP – a royalty on Cenovus's working interest production with implied first quarter volumes of approximately 5,400 BOE/d (pro forma), as well as a Gross Overriding Royalty (GORR) on Cenovus's Pelican Lake heavy oil property in northern Alberta and its enhanced oil recovery project in Weyburn, Saskatchewan, with implied first quarter volumes of 1,600 BOE/d (pro forma). The GORR represents less than 15% of HRP's cash flow.

"We believe this agreement captures significant value for Cenovus shareholders from our royalty and fee lands business," said Brian Ferguson, Cenovus President & Chief Executive Officer. "The proceeds from this sale will strengthen our balance sheet and provide us with greater resilience during these uncertain times as well as the flexibility to invest in organic projects with strong returns."

Cenovus's decision to sell HRP to Teachers' is the outcome of a rigorous marketing process that attracted significant interest. Over the past several months, the company considered several alternatives to generate value from the business, including a potential initial public offering. After a thorough review, the transaction with Teachers' was determined to be the best alternative to maximize value for Cenovus shareholders.

"We believe this transaction will realize value that isn't currently reflected in our share price," Ferguson said.

At the end of the first quarter, the company's net debt to capitalization ratio was 27%, which significantly improves with this transaction. Cenovus's pro forma cash position at the end of the quarter would have been $5.1 billion, or $6.16 per outstanding share. As a result of the transaction, Cenovus's consolidated production, on a pro forma basis, will be reduced by the 7,800 BOE/d of third-party royalty interest volumes.

Where Cenovus has current working interest production on these fee lands, the company has entered into lease agreements with HRP. Royalty rates and lease terms are attractive to Cenovus and are not expected to materially impact the free cash flow currently generated from these assets. To help preserve the future growth and development of its conventional oil and gas business, the company has also retained an option to acquire leases at pre-determined rates and lease terms for up to 10 years on more than 800,000 acres in zones of the fee lands currently being developed by Cenovus. Approximately 40 staff members of HRP will be transferred as part of the transaction.

TD Securities Inc. acted as Cenovus's exclusive financial advisor throughout the sales process. The effective date of the transaction is April 1, 2015 and it is expected to close by the end of July 2015, subject to certain conditions. Cenovus plans to provide more details about how it will use the proceeds from this sale once the deal closes.

ADVISORY

FINANCIAL INFORMATION

Non-GAAP Measures This news release contains references to cash flow (defined above) and net debt to capitalization, which is a ratio that management uses to steward the company's overall debt position and as a measure of the company's overall financial strength, where net debt is a non-GAAP measure defined as debt net of cash and cash equivalents, debt is a non-GAAP measure defined as short-term borrowings and the current and long-term portions of long-term debt, including the current portion, excluding any amounts with respect to the partnership contribution payable and receivable, and capitalization is a non-GAAP measure defined as net debt plus shareholders' equity.

These measures do not have a standardized meaning as prescribed by International Financial Reporting Standards (IFRS) and therefore are considered non-GAAP measures. These measures may not be comparable to similar measures presented by other issuers. These measures have been described and presented in this news release in order to provide shareholders and potential investors with additional information regarding Cenovus's liquidity and its ability to generate funds to finance its operations. This information should not be considered in isolation or as a substitute for measures prepared in accordance with IFRS. For further information, refer to Cenovus's first quarter 2015 Management's Discussion & Analysis (MD&A) available at cenovus.com.

OIL AND GAS INFORMATION

Barrels of Oil Equivalent Certain natural gas volumes have been converted to barrels of oil equivalent (BOE) on the basis of six Mcf to one barrel (bbl). BOE may be misleading, particularly if used in isolation. A conversion ratio of one bbl to six Mcf is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil compared to natural gas is significantly different from the energy equivalency conversion ratio of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.

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