Cenovus Energy and Headwater Exploration have announced the closing of the acquisition by Headwater of Cenovus's assets in the Marten Hills area of Alberta. Pursuant to the transaction, Headwater acquired a 100% working interest in approximately 2,800 barrels per day of medium gravity oil production and 270 net sections of Clearwater rights.

The total consideration paid by Headwater to Cenovus for the transaction consists of:

• $35 million in cash;
• 50 million common shares of Headwater; and
• 15 million purchase warrants exercisable at $2.00 per common share with a three-year term.

Concurrent with closing the transaction, Kam Sandhar, Cenovus's Senior Vice-President, Conventional, and Sarah Walters, Cenovus's Senior Vice-President, Corporate Services, were appointed to the Board of Directors of Headwater.

"With the strong support received from Cenovus, the Headwater team has been able to prepare for an active 2021 development program. The unique high-return assets acquired will provide the catalyst for the next stage of our corporate evolution," said Neil Roszell, Headwater's Chairman and Chief Executive Officer. "With Cenovus as a strategic investor and Kam and Sarah adding to the skills and experience of our already strong Board, we are well-positioned for success as a premier publicly traded oil and gas producer focused on asset quality, corporate level returns and sustainability while maintaining a pristine balance sheet."

“We look forward to working with Headwater’s highly respected management team as they begin to develop these top-quality oil assets at Marten Hills,” said Sandhar. “This is a unique opportunity to get capital and expertise to work right away on a promising portfolio that was unlikely to receive near-term funding from Cenovus, and we believe the closing of this transaction will provide compelling long-term value for Cenovus shareholders.”

As a result of the transaction, Cenovus owns, through Cenovus Marten Hills Partnership, 50 million Headwater shares representing 25.6% of the company’s issued and outstanding common shares. Including the common shares issuable if the warrants are fully exercised, Cenovus would own 65 million Headwater shares representing 30.9% of the company’s issued and outstanding shares.

Cenovus has filed Form 62-103F1 Required Disclosure Under the Early Warning Requirements, as a result of the transaction, a copy of which can be obtained on Headwater’s SEDAR profile at sedar.com or by contacting Cenovus’s Corporate Secretary at 225 6 Ave SW, PO Box 766, Calgary, Alberta, Canada T2P 0M5 or by telephone at (403) 766-2000.

In connection with the completion of the transaction, Cenovus and Headwater entered into an Investor Agreement which gives Cenovus the right to appoint two nominees to the Board of Directors of Headwater if Cenovus, together with its affiliates, owns 20% or more of the outstanding common shares, or one nominee if it, together with its affiliates, owns 10% or more but less than 20% of Headwater’s outstanding common shares.

The Investor Agreement also gives Cenovus the right to participate pro-rata in future offerings of common shares or securities of Headwater which are convertible, exchangeable or exercisable into common shares, subject to Cenovus owning or controlling, either directly or indirectly, at least 20% of the issued and outstanding common shares at the time of such offering.

In accordance with the terms of the Investor Agreement, Cenovus also agreed to vote, or cause to be voted, all of the common shares held by it and its affiliates for or otherwise abstain from voting in respect of any management proposal set forth in the management forms of proxy prepared in respect of any meeting of shareholders of Headwater.

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