By Chester Dawson
CALGARY, Alberta-- Suncor Energy Inc. on Monday moved to expand
its already large presence in Canada's oil sands with a 4.3 billion
Canadian dollar ($3.3 billion) hostile bid for Canadian Oil Sands
Ltd., the largest owner of the Syncrude mining consortium.
The all-stock bid by Canada's largest oil and gas company
represents a 43% premium based on Canadian Oil Sands' closing stock
price Friday. It is also a bet by Suncor to double down on its core
Alberta oil-sands business at a time when oil prices have slumped
to six-year lows and criticism about the industry's environmental
impact has stymied new pipeline projects. Those challenging
economics have forced many global oil producers, including France's
Total SA and Statoil ASA of Norway, to delay or indefinitely
suspend planned oil-sands projects.
"We think it's an excellent business going forward and are very
happy with the concentration in oil sands," Suncor Chief Executive
Steve Williams said in an interview.
Canadian Oil Sands, which owns but doesn't operate any oil-sands
assets, has seen its stock slump due to lower oil prices and its
surging debt load. It recently said it was looking at selling some
of its future production to shore up its balance sheet.
The Calgary, Alberta-based company responded coolly to Suncor's
proposition, advising shareholders on Monday to reserve judgment
until its board has vetted the offer. "Shareholders are urged not
to take any action or make any decision with regard to the Suncor
offer until the Board has had an opportunity to fully review the
Suncor offer and to make a recommendation as to its merits,"
Canadian Oil Sands said in a statement.
Shares of Canadian Oil Sands, which closed Friday at C$6.19,
were recently up 48.3% to C$9.18 on the Toronto Stock Exchange.
Suncor shares were down 2.2% to C$34.60.
Including Canadian Oil Sands debt, Suncor valued its unsolicited
offer at C$6.6 billion, or an implied value of C$8.84 a share. Mr.
Williams said the offer of 0.25 of a share for its crosstown rival
was a "very full and fair offer." Nonetheless, the offer was well
below what it was willing to offer six months ago.
Mr. Williams said Suncor first approached Canadian Oil Sands'
management on March 6 and submitted an "expression of interest"
letter three days later. But that and an offer for the equivalent
of C$11.84 a share on April 9 were both rebuffed by Canadian Oil
Sands' board, he said.
One major Canadian Oil Sands shareholder came out against the
offer Monday. Canadian billionaire Seymour Schulich, who owns a
5.2% stake in the company, said he strongly opposes Suncor's bid.
"The bid has to be at least double or we [will] likely go to court
for a proper valuation," Mr. Schulich told The Wall Street
Journal.
McDep Oil and Gas Investment Research, which offers independent
research on the energy sector, said it believed Canadian Oil Sands
is worth C$16 a share and urged investors to hold out for a sweeter
bid from Suncor. "The first offer is rarely the final offer and we
would expect the [Canadian Oil Sands] board to resist strongly the
initial terms," it said in a research note.
Many investors had speculated in recent months that Canadian Oil
Sands might be a takeover target by one of its partners in
Syncrude. Before the Suncor bid, its stock price had fallen 41% so
far this year.
Despite its leading 37% stake in Syncrude, Canadian Oil Sands
ceded the role of lead operator role to Exxon Mobil Corp.'s
Canadian subsidiary, Imperial Oil Ltd., nearly a decade ago.
Imperial is the second largest owner of Syncrude with a 25% stake,
followed by Suncor's 12% share. Four other oil companies own
smaller stakes.
Suncor may face a counterbid from Imperial Oil, National Bank
Financial said in a research note Monday, adding the offer from
Suncor was at a "significant discount" to the investment Exxon
Mobil made recently developing another oil-sands mining
operation.
A representative for Imperial Oil declined to comment on whether
it might offer a competing bid. "It is premature to comment on any
potential implications of this proposed transaction on the Syncrude
joint venture," said spokesman Pius Rolheiser.
Even before the sharp drop in crude oil prices a year ago,
Syncrude's operations were bedeviled by a number of unplanned
outages that cut into production. The company said earlier this
year that those problems were largely behind it, but a fire in late
August at its oil processing facility halted output for nearly a
month. The cause of the blaze remains under investigation.
Meanwhile, Suncor, which boasts an C$11.8 billion dollar war
chest, said recently that it would resume suspended share
repurchases and left the door open to deal-making without
specifying any targets.
Mr. Williams told investors in late July that Suncor wasn't
being "aggressive" about buyout opportunities, but that asset
prices were becoming more attractive. "Our view was that the prices
were still too high and [for] the natural choices we looked at, we
were not prepared to pay the prices" asked, he said. "Clearly as
time is going on they've move down and there are better
opportunities there," he said on a July conference call.
Last month, Suncor made a smaller move to boost its footprint in
the oil sands, agreeing to increase its stake in the Fort Hills
oil-sands project in Alberta to just over 50% by buying a 10% stake
from Total, a Fort Hills partner, for C$310 million dollars.
Judy McKinnon and Ben Dummett contributed to this article.
Write to Chester Dawson at chester.dawson@wsj.com
(END) Dow Jones Newswires
October 05, 2015 14:19 ET (18:19 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
Imperial Oil (AMEX:IMO)
Historical Stock Chart
From Mar 2024 to Apr 2024
Imperial Oil (AMEX:IMO)
Historical Stock Chart
From Apr 2023 to Apr 2024