Impoving production and lowering costs would justify a take over now for COS by SU.
SU would be able to buy COS cheap now that the NDP win took any premium ($4) off the price from take over speclation prior to the NDP win.
Steve Williams is in a position to understand SU oil sand assets are stranded in Alberta anyway and impoving Syncrude production and lower costs make COS production costs of a new 126,000bpd oil sand project a $15 billion investment with a 5yr wait for full production. With COS trading @ only $4.7 billion SU can not justify a new oil sand project nor can IMO.Yet buying $3 of assets for $1 of cost levered to an increasing oil price is a logical deployment of capital.
CDN OIL SANDSStock data delayed up to 20 minutes
chart type: 3year, Comparative
ANALYSIS: The coming wave of consolidation in Canada’s energy patch could crash on Canadian Oil Sands first.
Analysts have long expected widespread mergers among the country’s largest oil and gas producers as the industry retrenches in reaction to the collapse in crude oil prices. Rick George, longtime Suncor CEO and current chairman of Penn West Petroleum, described the process where weaker players are absorbed by those that managed to maintain their strength as “cleansing.”
Few of the sector’s larger players have been hit harder by the downturn than the single largest shareholder of the Syncrude mining consortium. Shares of Canadian Oil Sands (COS owns 36.74% of Syncrude) have been cut nearly in half over the past year. Suncor, which owns 12 percent of Syncrude, has by comparison managed to maintain the same share price over the past 12 months despite a 50-percent oil price drop.
The relative weakness of COS versus the comparative strength of Suncor (SU.TO 0.00%) has spawned significant rumours that Suncor could make a bid for its struggling rival. While neither company is willing to comment publicly on the possibility of a sale, there is reason to believe the rumours will soon move to reality: Suncor has more than $5-billion in cash to fund a major acquisition and from a logistical perspective, Mike Dunn notes the company already has its own mine physically close to COS’ sole asset.
“Syncrude and Suncor are across the street from each other, literally,” the FirstEnergy Capital analyst told the Calgary Herald, “so there should be a lot of cost synergy opportunities if those operations were integrated.”
Dunn published a report earlier this week suggesting Imperial Oil, the Canadian subsidiary of ExxonMobil and also the operator of Syncrude with a 25-percent ownership stake, was the more logical suitor. His argument was in part based on his knowledge of recent investor meetings with Imperial’s management team about now being an ideal time to make acquisitions of large-scale producing assets. Dunn also suggested, and a number of veteran Calgary-based analysts agreed, that Imperial and Suncor joining forces to bid for Canadian Oil Sands together was a very realistic possibility.
If Suncor wants to increase its Syncrude stake, Dirk Lever argues it would make far more sense for the company to buy Murphy Oil’s 5% stake since it is already up for sale. The AltaCorp Capital analyst believes buying COS would be most expensive than it might first appear.
“The price [Suncor/Imperial] would have to pay to get [Canadian Oil Sands] from the public would be a big premium,” Lever told BNN via email. “The arbs [arbitrage firms] would get involved and would want to ‘extract’ a huge premium.”
Canadian Oil Sands maintains it is in “good financial shape” and does not need a savior to swoop in and buy the company, though they may not have a choice. None of the rumours detailed above have been confirmed, but one reality that requires no confirmation is the “cleansing” is coming. The only unanswered questions are who will do the cleansing and who will be cleansed?
Jameson Berkow is BNN's Western Bureau Chief. Follow him on twitter @crudereporter