Suncor Energy Inc. has announced an unsolicited offer for Canadian Oil Sands Limited, a CAD$4.3 billion (USD$3.3 billion) bid to take over the beleaguered oil sands producer.
The all-stock takeover bid would entail every shareholder of Canadian Oil Sands receiving 0.25 shares of Suncor.
“We believe this is a financially compelling opportunity for COS shareholders,” Steve Williams, Suncor's president and chief executive officer, said in a statement. “By accepting this Offer, COS shareholders will become investors in Canada's leading integrated energy company with 50 years of experience in oil sands operations and a track record of returning significant value to shareholders. We're offering a significant premium to COS' current market price and also providing exposure to a meaningful dividend increase. We're confident in the value this Offer provides to COS shareholders.” Related: What Will Happen To Oil Prices When China Fills Its SPR?
Canadian Oil Sands holds 37 percent of the Syncrude consortium, which has 350,000 barrels per day of oil production. But the company has been struggling under the weight of low oil prices, accumulating $2.3 billion in outstanding debt as of June 30, 2015.
Suncor, which is not without its scars from the crash in oil prices, is taking advantage of depressed asset values to scoop up Canadian Oil Sands, with an eye towards growing during the downturn. Suncor says that Canadian Oil Sands’ shareholders will receive a 43 percent premium based on the company’s share price on October 2.
Producing in Canada’s oil sands is expensive, and the inability for Canadian companies to build long distance pipelines presents a significant threat to growth. Canadian oil trades at a discount to larger international benchmarks due to limited options for exports. But there are no clear near-term solutions on the horizon for Canada’s oil patch, with major pipeline projects stalled east, west, and south. Related: Shell’s Loss Is Eni’s Gain
Clouding the picture further is political change. The new premier of Alberta is less friendly to the oil and gas industry, and the country’s upcoming federal election could usher out the conservative government, which has been a staunch ally of oil and gas.
Canada saw its economy contract in the first half of 2015, but 3rd quarter growth is expected to have technically put an end to the recession. Still, with oil prices remaining depressed, the Canadian economy is expected to continue to struggle.
By Charles Kennedy of Oilprice.com
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I wouldn't rule out Canada yet.
American attempts to landlock our oil until theirs runs out may not quite succeed like they hope.
9B is the first victory. The first of many.