Syncrude stake comes up for grabs
Canadian Oil Sands most logical taker
A slice of Syncrude Canada Ltd. may soon be up for grabs, and the logical -- and self-professed hungry -- buyer is Canadian Oil Sands Trust, industry experts say.
ConocoPhillips Inc., which in early October said it is looking to offload about $10-billion in assets, yesterday pinpointed its 9.03% stake in Syncrude as potential property it may put on the block.
"[Syncrude] is a good investment, but we think that there is plenty of interest," Jim Mulva, ConocoPhillips chief executive, said during his company's third-quarter conference call.
Randy Ollenberger, a Calgary-based analyst at BMO Capital Markets, is among those betting Syncrude's largest stakeholder will snap up ConocoPhillips' stake.
"Canadian Oil Sands is the logical buyer," he said. "[It] could raise equity, plus take on additional debt, to acquire the stake."
ConocoPhillips' interest in the oil sands mining operation, based on Canadian Oil Sands' stock price, is worth about $3.6-billion.
Phil Skolnick, an analyst at Genuity Capital Markets in Calgary, calculates Canadian Oil Sands, at its current unit price, would have to issue about 100 million shares to get the deal done.
Should Canadian Oil Sands seek loans, it may have to tinker with its debt targets. The company has $1.1-billion in net debt, as of Sept. 30, up from $1-billion at the end of 2008.
"We have a net debt target of approximately $1.6-billion by the end of 2010," Canadian Oil Sands said in its third-quarter results, released yesterday.
Mike Tims, chairman of Peters & Co., a Calgary-based investment bank, contends that while sovereign wealth funds and other entities may angle for the stake, existing Syncrude partners make the most sense.
"Canadian Oil Sands and Imperial [Oil Ltd.] would particularly leap out," Mr. Tims said.
However, Imperial Oil may take a pass because it has its plate full with its new Kearl oil-sands project. Suncor Energy Inc., which became a 12% owner in the rival project when it absorbed Petro-Canada, also has a number of expensive opportunities among the assets it owns.
Imperial, controlled by Exxon Mobil Corp. through its 69.6% stake in the Canadian outfit, owns 25% of Syncrude and operates the project. Imperial declined to comment, as did Canadian Oil Sands.
Syncrude produced 340,000 barrels of oil per per day in September.
Oil Sands, which owns 36.74% of Syncrude, has picked up stakes from former partners in the past.
It paid $475-million for a 1.25% interest from Talisman Energy Inc. in 2007, and bought almost 14% from EnCana Corp. through two deals in 2003.
" We have consolidated some interests in the past, and we would generally have an interest in new ones coming up," Marcel Coutu, Canadian Oil Sands chief executive, told Bloomberg two weeks ago.
State-owned oil companies from China and South Korea both have Canadian energy deals going through the regulatory process.
While it is clear these countries are prowling for opportunity, Mr. Tims says they may take a pass on the Syncrude stake.
"I strongly suspect they will prefer assets where they can actually be in control," he said. "But there may be other kinds of more investment-oriented entities that would buy it purely on the economics -- there are lots of sovereign wealth funds in the world."
Canadian Oil Sands made $247-million, or 51¢ per unit, in the third quarter, down from $604-million ($1.25) in the same quarter last year, it said in a statement yesterday.