| DEALTALK-Canada's oil patch, mines tempt Asian giants 18:11 EDT Thursday, October 22, 2009 | |
* More deals seen as Asian economies grow
* Squeezed Canadian balance sheets make for bid targets
* State-owned firms can take long-term view
By Jeffrey Jones and Pav Jordan
CALGARY/TORONTO, Oct 22 (Reuters) - Canada's energy and mining sectors are riding a wave of acquisitions by Asian companies that are flush with cash and hungry for resources to fuel rapidly expanding economies, a trend not expected to let up soon.
Deals such as Korea National Oil Corp's C$1.8 billion ($1.7 billion) bid for Harvest Energy Trust
"We've been saying that the sectors which are the most susceptible to such M&A are the resource and energy sectors, and I still believe this to be the case," said Alain Auclair, head of investment banking for UBS Securities Canada.
"You still see the Asian countries with access to capital or strong balance sheets that can deploy cash quickly to seize opportunities.
"I think it's a trend that we're going to keep seeing, especially for companies who might be under pressure from a balance sheet perspective."
That is the case with debt-heavy Harvest, known for its Western Canadian oil and gas operations and a refinery on the East Coast, one it could not afford to expand by itself.
Last week, China's No. 2 nickel miner, Jilin Jien Nickel Industry <600432.ss>, and Canada's Goldbrook Ventures
The number of such deals will only increase as China, Korea and other Asian nations seek to own the production of resources such as nickel or oil, instead of having to buy them on international markets.
South Korea, for example, aims to pump 300,000 barrels of oil a day by 2012 as it expands its manufacturing economy. It is currently the world's fifth-largest oil importer.
In August, state-owned PetroChina paid C$1.9 billion for a 60 percent stake in two planned oil sands projects owned by Athabasca Oil Corp. That was China's largest Canadian oil acquisition to date.
The deal helped fuel the shares of small developers such as Opti Canada Inc
CASH IS KING
At a time when publicly traded businesses are struggling under the weight of a global economic crisis, state-owned oil companies can deploy cash for multibillion-dollar projects without having to seek shareholder approval.
"They couldn't care less about the balance of this year, or next year, even the year after," FirstEnergy Capital Corp analyst William Lacey said. "They're looking at the next 10-20 years, and the internal demands and they are going to meet those demands."
Bob Schulz, a professor of strategy and global management at the University of Calgary's Haskayne School of Business, said big, but not blockbuster deals will continue to be the order of the day in Canada's oil patch.
"Big, positive and probably in C$1 billion to C$2 billion bite-size chunks," said Schulz.
Those transactions are large enough to give new companies a a foothold in long-term projects like oil sands developments, but not of a scale to cause alarm in the United States, Canada's largest energy and minerals export market, Schulz said.
Canada has been coveted as a storehouse for natural resources for hundreds of years, and investors in oil, gas and minerals enjoy minimal political risk.
In energy circles, it is best known for Alberta's oil sands, the largest deposits of crude outside the Middle East.
Developing the unconventional oil using mining or underground steam techniques is costly, and numerous small players have been culled to make way for major companies with deep pockets.
Harvest is not an oil sands developer, but KNOC made a foray into that part of the business in 2006 by acquiring an oil sands property from Newmont Mining Corp
Analysts say buyers will get a boost from legal changes in Canada that force most Canadian income trusts to convert to traditional corporations by 2011, when their favored tax status terminates.
The changes will force many, sometimes highly leveraged, trusts to either become corporations, merge or get squeezed financially, making many into attractive targets.
($1=$1.05 Canadian) (Editing by Rob Wilson)
* Long Lake oil sands project restarts
* Shares rise as much as 12 percent
CALGARY, Alberta, Oct 15 (Reuters) - Shares of Opti Canada Inc rose as much as 12 percent on Thursday as its partner in the Long Lake oil sands project restarted production after shutting the facility for maintenance in mid-September.
Opti shares were up 16 Canadian cents, or 7.1 percent, at C$2.43 in afternoon dealings on the Toronto Stock Exchange after touching C$2.54 earlier in the day. Volume was 5.06 million shares, nearly half again the usual average over the past three months.
Opti owns a 35 percent stake in the Long Lake oil sands project in northern Alberta. Partner Nexen Inc said on Thursday that it had completed a month-long turnaround at facility and was ramping bitumen production up to the 12,000 to 15,000 barrel a day level that it had produced before the shutdown began.
Long Lake is a thermal oil sands project, which pumps steam into the ground to liquefy deposits of tar-like bitumen so it can be pumped to the surface and shipped to the project's upgrader for conversion into refinery-ready synthetic crude.
The project has the capacity to produce as much as 60,000 barrels of synthetic crude per day, but because thermal projects take months or more to reach full output, Long Lake isn't expected to reach peak rates for up to two years.
Opti has been a favored target for takeover rumors in recent months, with the shares shooting up a third. The company said it couldn't point to any reason for the gain, though some analysts credited high frequency trading methods and speculation that Chinese interests could be readying a takeover bid.
Opti shares also often move in tandem with oil prices, which rose on Thursday to the highest this year, recently trading above $77 a barrel.
"If you're looking for the most levered oil play out there, this is it," said William Lacey, an analyst at FirstEnergy Capital.
($1=$1.03 Canadian) (Reporting by Scott Haggett; editing by Peter Galloway)
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