Syncrude Canada good for take-over

The company with the largest stake in oils ands miner Syncrude Canada is a prime takeover target and its most likely suitor is the company with the second-largest stake, according to a research report published Monday.

But the report’s author, oilsands analyst Michael Dunn of Calgary investment firm FirstEnergy Capital, said many variables would have to line up before Calgary-based Imperial Oil Ltd. (25 5 Syncrude owner) could make a successful bid for cross-town rival Canadian Oil Sands Ltd. (36.74 5 Syncrude owner).

One of those might be a partnership with Calgary-based oilsands giant Suncor Energy Inc., which inherited 12 5 of Syncrude when it bought Petro-Canada in 2009, he speculated.

Predictions of a wave of consolidation among oil industry majors have swirled after Royal Dutch Shell PLC announced a $70 billion US bid for BG Group PLC last week and Spain’s Repsol SA announced the yet-to-be completed $8.3 billion acquisition of Talisman Energy Inc. in December.

Share values of oil producers have been hit hard by the halving of crude prices since last summer but Canadian Oil Sands has been hit harder than most. Its market capitalization fell from $11.8 billion last spring to $5.5 billion, as its share price fell from a 52-week high of $24.68 to close at $11.37 on Monday.

Dunn said his report is partly based on recent investor meetings with senior Imperial executives who agreed now is a good time to consider making acquisitions provided the target meets five criteria:  large scale of operations, high-quality resources, synergies with existing Imperial operations, producing or nearly producing assets and very attractive pricing.

“It sounds to me like producing oilsands,” said Dunn. “So, what would be large-scale, producing oilsands? There aren’t that many candidates.”

He calculated that Imperial likely wouldn’t want to pay more than a price in the low teens for Canadian Oil Sands, so its stock would have to fall further to make an Imperial bid attractive. He also suggested the company wouldn’t want to take on excessive debt — that could mean an equity-based offer, help from its controlling shareholder, ExxonMobil Corp., or enrolling a current Syncrude partner such as Suncor.

“Imperial and Suncor teaming up on COS, what we don’t know is at what price they would want to bid if they want to bid,” said Dunn. “My point is that Syncrude and Suncor are across the road from each other, literally, so there should be a lot of cost synergy opportunities if those operations were integrated.”

Spokeswoman Siren Fisekci said Canadian Oil Sands won’t comment on speculation and it doesn’t need a saviour. “We are in good financial shape,” she said.

“As a matter of practice, Imperial does not comment on market speculation,” spokesman Pius Rolheiser wrote in an e-mail. “Similarly, we don’t discuss specific business strategies, including potential acquisitions, divestments or other potential future actions.”

Suncor spokesman Michael Lawrence said in an e-mail: “It’s not our practice to discuss speculation like that found in FirstEnergy’s report.”

The report looked at other potential Imperial targets in the oilsands, including MEG Energy Corp. ($9 billion enterprise value), Cenovus Energy Inc. ($23 billion) and the Surmont thermal oilsands project (likely price of $7.5 billion to $9 billion) owned by ConocoPhillips and Total.

It said all three potential deals are attractive to varying degrees and there would be cost-saving synergies but the price per share would be a deciding factor — along with the fact that Imperial will continue to be a well-respected, healthy energy company with a full portfolio of internal investment opportunities even if it decides against making any acquisitions.

Imperial shares closed at $54.03 on Monday, down from their 52-week high of $57.97. Its market capitalization was $45.8 billion. – Calgary Herald

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