Drilling for Oil...on Bay Street!

[GRG55]

As politically motivated a merger as one will find in the oil patch. Not a single barrel of new oil will be found as a result of this deal.

The part about "competing globally" is particularly laughable. Suncor has no experience working internationally [outside Canada and the USA], and PetroCanada's less than sterling record and general lack of success in the international arena is the primary reason it's now a target. If Suncor was serious about expanding internationally, or reducing its oil sands dependence, there are far, far better targets it could have gone after both internationally and in Canada.

The only good part might be that Suncor, with a long and successful history of oil sands mining, can bring some capabilities to the PetroCanada's troubled Fort Hills oil sands project...assuming the Canadian government lets them keep it. :p

Suncor to acquire Petro-Canada

All-stock deal would unite two of Canada's biggest oil companies

Globe and Mail Update
March 23, 2009 at 5:16 AM EDT

Suncor Energy Inc. has reached an agreement to acquire Petro-Canada, a deal that would mark the final chapter of independence for the former state-owned oil company.

The companies released a joint statement early Monday announcing the details of an all-stock deal that will see the companies form an entity with a combined market capitalization of $43.3-billion. The new corporation would continue to operate and trade under the Suncor name.

"This merger creates a made-in-Canada energy leader with the assets, cost structure and financial strength to compete globally," said Rick George, Suncor's current chief executive and prospective head of the joint venture...

[blazespinnaker]

Re: Drilling for Oil...on Bay Street!

As politically motivated a merger as one will find in the oil patch. Not a single barrel of new oil will be found as a result of this deal.

The part about "competing globally" is particularly laughable. Suncor has no experience working internationally [outside Canada and the USA], and PetroCanada's less than sterling record and general lack of success in the international arena is the primary reason it's now a target. If Suncor was serious about expanding internationally, or reducing its oil sands dependence, there are far, far better targets it could have gone after both internationally and in Canada.

The only good part might be that Suncor, with a long and successful history of oil sands mining, can bring some capabilities to the PetroCanada's troubled Fort Hills oil sands project...assuming the Canadian government lets them keep it. :p

Suncor to acquire Petro-Canada

All-stock deal would unite two of Canada's biggest oil companies

Globe and Mail Update
March 23, 2009 at 5:16 AM EDT

Suncor Energy Inc. has reached an agreement to acquire Petro-Canada, a deal that would mark the final chapter of independence for the former state-owned oil company.

The companies released a joint statement early Monday announcing the details of an all-stock deal that will see the companies form an entity with a combined market capitalization of $43.3-billion. The new corporation would continue to operate and trade under the Suncor name.

"This merger creates a made-in-Canada energy leader with the assets, cost structure and financial strength to compete globally," said Rick George, Suncor's current chief executive and prospective head of the joint venture...

Hmm ... Politically motivated in what way? I think this could be two organizations that are bleeding hard and in order to survive they're going to merge and cut redundancies massively.

[don]

Canadian Two-fer

March 24, 2009
In Canada, 2 Oil Giants Agree to Merge

By IAN AUSTEN and ANDREW ROSS SORKIN


Suncor Energy has agreed to acquire Petro-Canada in an all-stock deal worth about $15 billion, the companies announced Monday morning.
The merger will combine two of the largest operators in Canada’s oils sands which have high production costs and which have become a target of environmental groups.

Under the plan, Petro-Canada shareholders will receive 1.28 common shares of the expanded company for each share of Petro-Canada, while Suncor shareholders will receive new shares on a one-for-one basis. Petro-Canada shareholders will hold 40 percent of the enlarged company and Suncor shareholders will hold 60 percent.

In a statement, the companies said the merger was expected to save about $300 million year. Like everyone in the energy business, both companies have seen prices and demand drop for their oil.

The end of Petro-Canada as an independent company would eliminate the last vestige of a ambitious, and highly controversial program, started by former Prime Minister Pierre Elliot Trudeau during the 1970s to assert Canadian control over the country’s energy resources.

The $15 billion price would represent about a 25 percent premium for Petro-Canada, which was controlled by the federal government until 1995. Domestically, the company operates conventional and oil sands production sites, refineries and a nationwide chain of service stations. It earned 3.8 billion Canadian dollars last year.

But many of Petro-Canada’s investors were dissatisfied with the company’s financial performance even before the current collapse of energy prices.

In a securities filing last month, the Ontario Teachers’ Pension Plan, which owns about 3.3 percent of the company, said that it has “held discussions with the management and board of Petro-Canada regarding the creation of shareholder value. Those discussions are continuing.”

Other investors have called on the company to narrow its focus.
Suncor, the third-largest oil and gas company in Canada, was originally a subsidiary of Sun Oil and still uses its Sunoco trademark at service stations in Canada. But the American company sold its final holdings in 1995.

Suncor, through a variety of companies, began investing in the oil sands after the World War ll and became the first company to produce synthetic crude oil from their deposits during the 1960s. While controversial, the oil sands have helped to make Canada the United State’s largest supplier of imported crude oil.

Petro-Canada was a portion of Mr. Trudeau’s National Energy Program, which remains widely reviled in Alberta, home to the oil sands and the country’s energy industry. Among other things, it removed some Canadian production from world market prices. Petro-Canada was also given a number of responsibilities outside of market performance.

The all-stock deal will allow both companies to conserve cash during the current downturn.

http://www.nytimes.com/2009/03/24/bu...l.html?_r=1&hp

[GRG55]

Re: Drilling for Oil...on Bay Street!

Hmm ... Politically motivated in what way? I think this could be two organizations that are bleeding hard and in order to survive they're going to merge and cut redundancies massively.

Nope.

Suncor has a set of assets, including some of the best of the oil sands leases**, that are simply impossible to replicate today. This is [Suncor CEO] Rick George's way of avoiding being taken over, after he and his management team completely fluffed the response to the Alberta Government's action of unilaterally tearing up their royalty contract. Instead of defending the shareholder's interests [like Syncrude did], Suncor's management caved in without a fight. Having made a bad deal, in a useless attempt to curry political favour with the Alberta Government, the company has been vulnerable to a takeover from the likes of BP or similar ever since.

This is Suncor management's way of avoiding the potential consequences. Because of the PetroCanada Public Participation Act ownership restrictions it never faced any real threat of a takeover, no matter how badly it was managed [and it's been abysmal]. Apparently Rick George has proposed that the ownership restrictions that apply to PetroCanada be extended to the newly merged entity.

So the chronically underperforming and government protected former national oil company ends up in the hands of a Canadian suitor, thus saving the Federal Government the embarrassment of having to nix a foreign takeover. The voters are further subdued by the assurance that the ownership restrictions will permanently prevent any foreign [or Canadian, for that matter] takeover of the combined Suncor and PetroCanada. And Suncor's management have executed a long standing Canadian corporate tradition of entrenching themselves; in this instance behind a legislative barrier - how convenient. All politics, all the time...

Rick George has just taken the final step to wrecking what used to be a superb company. The talk about "going international" is just utter nonsense. And the yabbering about how Suncor finds PetroCanada's portfolio of projects "so attractive" is even more jibberish. If those projects were so good PetroCanada wouldn't need to sell itself. Certainly its balance sheet is in decent shape, so there was no acute financial pressure to have to do something.

This is now destined to be a much larger, chronically underperforming entity, run for the benefit of supporting management's lifestyle, and catering to the political needs of the Federal Government, instead of for the shareholders. The employees will be distracted by several years of integration issues, cultural clashes, job insecurity due to restructuring and headcount cuts, and so forth. That is hardly the environment for a top performing company. It's all so wearily predictable...

P.S.: I doubt you'll hear anything so negative from any of the Bay Street analysts. They need to protect their access to the companies, and their employers make fees from M&A, so it'll probably be breathless adoration for this deal.

**For example Suncor's thermal wells cost twice as much as the peer average to operate, but produced three times the peer average.

[blazespinnaker]

Re: Drilling for Oil...on Bay Street!

ahhh, thx for that. You're a pretty well plugged in guy.

[LargoWinch]

Re: Canadian Two-fer

That may help pay for Bell's mess and anticipated legal costs:

Ontario Teachers’ Gains C$286 Million on Petro-Canada Takeover


By Doug Alexander
March 23 (Bloomberg) -- Ontario Teachers’ Pension Plan, the money manager that’s pushed to revive Petro-Canada’s stock, stands to gain about C$286 million ($231 million) from Suncor Energy Inc.’s proposed takeover of the Canadian oil company.

Continued here:
http://www.bloomberg.com/apps/news?p...4&refer=canada