MEG Energy upgraded to ’BBB’ at S&P after Cenovus acquisition
Investing.com -- S&P Global Ratings has upgraded MEG Energy Corp. to ’BBB’ from ’BB-’ following its acquisition by Cenovus Energy Inc., while maintaining a negative outlook.
The rating agency cited MEG’s new status as a core subsidiary of Cenovus, with its assets considered integral to the parent company’s future strategy. The acquisition added over 20% to Cenovus’ net proved reserves and approximately 12% to its estimated 2025 average production.
MEG owns and operates in-situ oil sands resources in the Athabasca oil sands fairway, producing bitumen using steam-assisted gravity drainage (SAGD) technology. All of its current production comes from Christina Lake, located near Cenovus’ own Christina Lake oil sands operations.
The negative outlook for MEG mirrors S&P’s outlook on Cenovus, reflecting concerns about increased leverage resulting from the acquisition. S&P expects Cenovus’ funds from operations (FFO) to debt ratio could approach 45% under midcycle commodity price conditions.
S&P anticipates Cenovus will reduce share repurchases to lower net debt and explore opportunities to accelerate debt reduction. The agency estimates FFO to debt will be 55%-60% in 2026 and 2027 before falling to 45%-50% under midcycle oil and natural gas price assumptions.
A downgrade to ’BBB-’ could occur if FFO to debt approaches 45% under midcycle price assumptions without prospects for improvement. This could happen if production falls short of estimates, refining margins don’t improve as expected, or if the company maintains high share repurchases instead of reducing debt.
The outlook could be revised to stable if Cenovus reduces net debt over the next two years, maintaining FFO to debt comfortably above 45% for a sustained period, including under midcycle conditions.
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