FORM 51-102F4
BUSINESS ACQUISITION REPORT

ITEM 1.IDENTITY OF COMPANY

1.1Name and Address of Company

Cenovus Energy Inc. ("Cenovus")

4100, 225 – 6 Avenue SW

Calgary, Alberta  T2P 1N2

1.2Executive Officer

The name and business telephone number of the executive officer of Cenovus who is knowledgeable about the Arrangement (as defined below) and this report is:

Gary Molnar
Senior Vice-President Legal, General Counsel & Corporate Secretary
Telephone at 403-766-2000

Item 2.DETAILS OF ACQUISITION

2.1Nature of Business Acquired

Effective January 1, 2021, Cenovus completed its acquisition of all of the issued and outstanding common shares ("Husky Common Shares") and preferred shares ("Husky Preferred Shares") of Husky Energy Inc. ("Husky") pursuant to a court approved plan of arrangement ("Plan of Arrangement") under the Business Corporations Act (Alberta) (the "Arrangement"). The Arrangement was completed in accordance with the Arrangement Agreement dated October 24, 2020 between Cenovus and Husky and the Plan of Arrangement.  

As a result of completing the Arrangement, Husky has become a wholly-owned subsidiary of Cenovus.  Husky is a Canadian, integrated energy company based in Calgary, Alberta and organized under two business segments: (i) an integrated Canada-U.S. upstream and downstream corridor (the "Integrated Corridor"); and (ii) production located offshore the east coast of Canada ("Atlantic") and offshore China and Indonesia ("Asia Pacific" and, collectively with Atlantic, "Offshore").

Integrated Corridor

Husky's business in the Integrated Corridor includes: (i) the Lloydminster Heavy Oil Value Chain; (ii) Oil Sands; (iii) Western Canada Production; (iv) U.S. Refining; and (v) Canadian Refined Products.

The Lloydminster Heavy Oil Value Chain includes the exploration for, and development and production of, heavy crude oil and bitumen, and the production of ethanol. Blended heavy crude oil and bitumen are either sold directly to the Canadian market or transported utilizing the Husky Midstream Limited Partnership pipeline systems to the existing Keystone pipeline and other pipelines to be sold in the U.S. downstream market. Heavy crude oil can be upgraded at Husky's upgrading facility located in Lloydminster, Saskatchewan and at Husky's asphalt refinery in Lloydminster, Alberta into synthetic crude oil, diesel fuel and asphalt. This business also includes the marketing and transportation of both

Husky's own production and third-party commodity trading volumes of heavy crude oil, synthetic crude oil, asphalt and ancillary products. The sale and transportation of Husky's production and third-party commodity trading volumes are managed through access to capacity on third-party pipelines and storage facilities in both Canada and the U.S. Husky is able to capture price differences between the two markets by utilizing infrastructure capacity to deliver production and/or third-party commodity trading volumes from Canada to the U.S. market.

The Oil Sands business includes the exploration for, and development and production of, bitumen within Husky's 50 percent owned and operated Sunrise Energy project in the Athabasca region of northern Alberta. It also includes the marketing and transportation of Husky's and third-party production of bitumen through access to capacity on third-party pipelines and storage facilities in both Canada and the U.S.

The Western Canada Production business includes the exploration for, and development and production of, light crude oil, conventional natural gas and natural gas liquids ("NGLs") in Western Canada. Husky's conventional natural gas and NGL production is marketed and transported with other third-party commodity trading volumes through access to capacity on third-party pipelines, export terminals and storage facilities which provides flexibility for market access.

The U.S. Refining business includes the refining of crude oil at the crude oil refinery owned and operated by Husky and located in Lima, Ohio, a non-operated interest in a crude oil refinery 50 percent owned by Husky and 50 percent owned and operated by BP Corporation North America Inc. and located in Toledo, Ohio, and the crude oil refinery owned by Husky and located in Superior, Wisconsin to produce diesel fuel, gasoline, asphalt and other products. Husky also markets its own and third-party volumes of refined petroleum products including gasoline and diesel fuel.

The Canadian Refined Products business includes the marketing of Husky's and third-party volumes of refined petroleum products, including gasoline and diesel, through petroleum outlets.

Offshore

Husky's Offshore business includes operations, development and exploration in Asia Pacific and Atlantic. The price received for Husky's Asia Pacific production is largely based on long-term contracts and crude oil production from Atlantic is primarily driven by the price of Brent.

Additional information concerning Husky and its business and assets may be found in the annual information form of Husky dated February 8, 2021 for the year ended December 31, 2020 (the "Husky AIF"), which is filed and available on SEDAR under Husky's profile at www.sedar.com. The Husky AIF does not form part of, and is not incorporated by reference in, this report.

2.2Acquisition Date

The Arrangement was completed effective January 1, 2021.

2.3Consideration

Pursuant to the Arrangement, holders of Husky Common Shares received 0.7845 of a Cenovus common share ("Cenovus Common Share") and 0.0651 of a Cenovus common share purchase warrant ("Cenovus Warrant") in respect of each Husky Common Share held, resulting in the issuance of 788,517,905

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Cenovus Common Shares and 65,433,323 Cenovus Warrants, and holders of Husky Preferred Shares exchanged each Husky Preferred Share for one Cenovus preferred share ("Cenovus Preferred Share") with substantially identical terms. Each whole Cenovus Warrant entitles the holder to acquire one Cenovus Common Share at an exercise price of $6.54 at any time up to January 1, 2026.  

The Cenovus Warrants have been listed on the Toronto Stock Exchange ("TSX") under the ticker symbol "CVE.WT" and on the New York Stock Exchange under the ticker symbol "CVE WS". The Cenovus Preferred Shares Series 1, Series 2, Series 3, Series 5 and Series 7 have been listed on the TSX under the ticker symbols "CVE.PR.A", "CVE.PR.B", "CVE.PR.C", "CVE.PR.E" and "CVE.PR.G". The Husky Common Shares and Husky Preferred Shares were delisted from the TSX at the close of trading on January 5, 2021.

In addition, each option to acquire a Husky Common Share (a "Husky Option") was exchanged for an option to acquire such number of Cenovus Common Shares as is equal to that number of Husky Common Shares that were issuable upon exercise of such Husky Option, multiplied by 0.7845, with an exercise price per Cenovus Common Share equal to the exercise price per share of such Husky Option divided by 0.7845 and rounded up to the nearest whole cent. All Husky Options were concurrently cancelled and terminated.

2.4Effect on Financial Position

As a result of completing the Arrangement, Husky became a wholly-owned subsidiary of Cenovus and will remain as such until completion of a planned amalgamation among the two entities.

Effective on closing of the Arrangement, the board of directors of Cenovus consists of eight members of the prior board of directors of Cenovus: Keith A. MacPhail (as Independent Board Chair), Alex J. Pourbaix, Keith M. Casey, Jane E. Kinney, Harold N. Kvisle, Richard J. Marcogliese, Claude Mongeau and Rhonda I. Zygocki, and four members of the prior board of directors of Husky: Canning K. N. Fok, Eva L. Kwok, Wayne E. Shaw and Frank J. Sixt.

In addition, immediately following closing of the Arrangement, Cenovus's executive teams consists of:

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2.5Prior Valuations

To the knowledge of Cenovus, there has been no valuation opinion obtained within the last 12 months by either Cenovus or Husky required by securities legislation or a Canadian exchange or market to support the consideration paid by Cenovus in connection with the Arrangement.

2.6Parties to Transaction

The Arrangement was not with an informed person, associate or affiliate (as such terms are defined under applicable securities laws in Canada) of Cenovus.

2.7Date of Report

March 26, 2021

ITEM 3FINANCIAL STATEMENTS

The audited consolidated financial statements of Husky as at and for the years ended December 31, 2020 and 2019, together with the notes thereto and the report of Husky's auditor thereon, which is filed and available on SEDAR under Husky's profile at www.sedar.com, is hereby incorporated by reference and forms part of this report.

Attached as Schedule "A" to this report are the following pro forma financial statements ("Pro Forma Statements") of Cenovus:

Cautionary Note Regarding Forward-looking Information

This report contains certain forward looking statements and forward-looking information (collectively referred to as "forward-looking information") within the meaning of applicable securities legislation, including the United States Private Securities Litigation Reform Act of 1995, about Cenovus's current expectations, estimates and projections about the future, based on certain assumptions made by Cenovus in light of Cenovus's experience and perception of historical trends. Although Cenovus believes that the expectations represented by such forward-looking information are reasonable, there can be no assurance that such expectations will prove to be correct.

Forward-looking information in this report is identified by words such as "expected", "planned", "estimates", "achieved" or similar expressions and includes suggestions of future outcomes, including statements about the planned amalgamation of Cenovus and Husky and pro forma financial information, including the Pro Forma Statements included in Schedule "A" to this report. Readers are cautioned not to place undue reliance on forward looking information as Cenovus's actual results may differ materially from those expressed or implied.

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Developing forward-looking information involves reliance on a number of assumptions and consideration of certain risks and uncertainties, some of which are specific to Cenovus and Husky and others that apply to the industry generally. The factors or assumptions on which the forward-looking information is based include expectations regarding the planned amalgamation of Cenovus and Husky; the continued integration of Cenovus's and Husky's businesses; and other events or circumstances that could cause the combined company's actual results to differ materially from those estimated or projected and expressed in, or implied by, the forward-looking information. Readers should carefully consider the risk factors discussed in each of Cenovus's and Husky's Management's Discussion and Analysis (MD&A) and Annual Information Form (AIF) for the year ended December 31, 2020, each of which is available on SEDAR at sedar.com, which discussions do not form part of, and are not incorporated by reference in, this report.

You should not place undue reliance on the forward-looking information contained in this report, as actual results achieved will vary from the forward-looking information provided herein and the variations may be material. Cenovus makes no representation that actual results achieved will be the same in whole or in part as those set out in the forward-looking information. Furthermore, the forward-looking information contained in this report is made as of the date of this report. Except as required by applicable securities law, Cenovus undertakes no obligation to update publicly or otherwise revise any forward-looking information or the foregoing list of factors affecting those statements, whether as a result of new information, future events or otherwise or the foregoing list of factors affecting the information.

This cautionary statement qualifies all forward-looking information contained in this report.

Caution Regarding Unaudited Pro Forma Consolidated Financial Statements

The Pro Forma Statements have been prepared using certain of Cenovus's historical financial statements and Husky's historical financial statements (the "Husky Statements"), as more particularly described in the notes to such Pro Forma Statements. The Pro Forma Statements are not intended to be indicative of the results that would actually have occurred, or the results expected in future periods, had the events reflected therein occurred on the dates indicated.

Since the Pro Forma Statements were developed to retroactively show the effect of a transaction that occurred at a later date, and even though they were prepared following generally accepted practice using reasonable assumptions, the Pro Forma Statements reflect limitations inherent in the very nature of pro forma data. The data contained in the Pro Forma Statements represents only a simulation of the potential financial impact of the Arrangement and related adjustments which are preliminary in nature. The underlying assumptions for the pro forma adjustments provide a reasonable basis for presenting the significant financial effect directly attributable to the Arrangement. These pro forma adjustments are tentative and are based on currently available financial information and certain estimates and assumptions. The actual adjustments to the consolidated financial statements will depend on a number of factors. Therefore, it is expected that the actual adjustments will differ from the pro forma adjustments, and the difference may be material. Undue reliance should not be placed on the Pro Forma Statements.  

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SCHEDULE "A"

See accompanying Notes to Pro Forma Consolidated Financial Statements (unaudited).

See accompanying Notes to Pro Forma Consolidated Financial Statements (unaudited).

Under the acquisition method, the acquired assets and liabilities assumed are measured at their estimated fair value at the date of acquisition with the exception of income tax, stock-based compensation, lease liabilities and ROU assets.

In accordance with the arrangement agreement, Cenovus acquired all the issued and outstanding Husky common shares in consideration for the issuance of 0.7845 Cenovus common shares plus 0.0651 Cenovus warrants for each Husky common share. Cenovus issued 788.5 million Cenovus common shares with a fair value of $6.1 billion, based on the December 31, 2020 closing share price of $7.75, as reported on the TSX. In addition, 65.4 million common share purchase warrants were issued. Each whole warrant entitles the holder to acquire one Cenovus common share at an exercise price of $6.54 per share. The warrants expire five years after the acquisition date. The fair value of the warrants was estimated to be $216 million.

Cenovus also acquired all the issued and outstanding Husky preferred shares in exchange for Cenovus first preferred shares with substantially identical terms and a fair value of $519 million.

The outstanding Husky stock options were exchanged for Cenovus replacement stock options. Each replacement stock option entitles the holder to acquire 0.7845 of a Cenovus common share at an exercise price per share of a Husky stock option divided by 0.7845. All the other terms and conditions of a Cenovus replacement option, including the term to expiry, vesting conditions and conditions to exercise will be the same as the Husky stock option. The fair value of the replacement stock options for services rendered by December 31, 2020 was estimated to be $9 million.

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The purchase price allocation is preliminary. The amount reflected as goodwill may be adjusted as Management continues to evaluate the fair value of the assets acquired and liabilities assumed. Changes in the fair value of the assets could have a material impact on the pro forma consolidated statement of earnings.

For the year ended December 31, 2020, 1.1 million replacement stock options and 11.3 million of warrants were excluded from the calculation of diluted loss per share as these options were anti-dilutive.

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