IMO Imperial Oil Limited

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)

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