TORONTO (Reuters) - Cenovus Energy Inc (>> Cenovus Energy Inc), Canada's second-largest independent oil producer, said on Tuesday it has agreed to sell its portfolio of oil and gas royalty properties to Ontario Teachers' Pension Plan for about C$3.3 billion ($2.66 billion).

"We believe this agreement captures significant value for Cenovus shareholders from our royalty and fee lands business," said Cenovus Chief Executive Officer Brian Ferguson. "This transaction will realize value that isn't currently reflected in our share price."

Calgary, Alberta-based Cenovus said the move will strengthen its balance sheet and offer flexibility to invest in growth projects.

As Reuters first reported this month, the decision to sell the unit, Heritage Royalty Ltd, to Teachers' Natural Resources Group (NRG) was made after exploring several options including an initial public offering.

For NRG the deal marks its first large bet on the energy sector. Teachers created NRG in 2013 to buy into real assets. In March, NRG bought a working interest in Weyburn Unit, a Saskatchewan-based oil asset, for C$153.4 million, marking its first energy deal.

Teachers' said the latest deal offers diversification benefits and a hedge against unexpected inflation.

Ziad Hindo, Teachers senior vice president, said the agreement was in line with an investment shift to "more direct and diversified energy sector holdings."

Heritage Royalty owns about 4.8 million acres of royalty interest and mineral fee title lands in Alberta, Saskatchewan and Manitoba.

Royalty lands are privately held oil and gas properties that are not subject to the royalties that producers pay governments for operating on publicly owned lands. Instead, producers pay a mineral tax to governments and royalties to the owners of the properties.

Cenovus said additional royalties have also been added to the Heritage portfolio, including one on its Pelican Lake heavy oil property in northern Alberta and its enhanced oil recovery project in Weyburn, Saskatchewan.

The Cenovus move comes about a year after Encana Corp (>> Encana Corporation) spun out similar properties in PrairieSky Royalty Ltd (>> PrairieSky Royalty Ltd), raising over C$4 billion.

Sources told Reuters earlier this month that other parties were interested in the Cenovus assets, including PrairieSky, Freehold Royalties (>> Freehold Royalties Ltd), Franco-Nevada (>> Franco-Nevada Corporation), and the Canada Pension Plan Investment Board (CPPIB).

TD Securities acted as Cenovus' financial adviser on the deal, which is expected to close next month.

(Additional reporting by Amrutha Gayathri in Bengaluru; Editing by Savio D'Souza, Kirti Pandey and Jeffrey Benkoe)

By Euan Rocha