As Canadian Oil Sands Ltd. tries to fend off Suncor Energy Inc.’s $4.33 billion bid, the latest upset at its only business couldn’t have come at a worse time.
Billionaire investor Seymour Shulich says he would support a sweetened offer for Canadian Oil Sands
The most outspoken opponent of Suncor Energy Inc.’s hostile takeover offer for Canadian Oil Sands Ltd. says he’d be willing to make a deal.
After missing production targets each year since 2010, Chief Executive Officer Ryan Kubik is trying to convince investors that this time he’ll deliver on what’s been promised. A Dec. 8 production cut at the Syncrude oilsands project only adds to the performance concerns.
“Performance is a big factor” for shareholders considering whether to sell to Suncor, said Michael Dunn, an analyst at FirstEnergy Capital Corp in Calgary. “This was supposed to be the year when things got better. Instead, they’ve got worse.”
The production cut at Syncrude highlights the challenges Kubik faces as he defends Canadian Oil Sands and its only asset against Suncor, whose market value is more than 12 times larger and which operates additional mines in Alberta, four refineries, almost 1,500 Petro-Canada service stations and oil wells in the North Sea. Extracting bitumen and converting it into crude is increasingly dominated by large, diversified companies like Suncor, Canadian Natural Resources Ltd. and Imperial Oil Ltd.
Kubik is seeking a second chance from shareholders, who have been stung by a 75 per cent drop in the share price since April 2011. Kubik says greater rewards await if the company remains independent. Suncor CEO Steve Williams says his offer for Canadian Oil Sands, the largest owner of the Syncrude oilsands mine, would allow investors to move beyond the past poor performance.
“If you want to grow in the oilsands, you need a lot of capital and a strong balance sheet to better weather commodity prices,” said Amir Arif, an analyst at Cormark Securities Inc in Calgary.
This was supposed to be the year when things got better. Instead, they’ve got worse
Canadian Oil Sands’s patchy record in meeting earnings targets also appears to weaken Kubik’s hand. His company, with fewer than 50 employees, has missed adjusted-earnings-per-share estimates in seven of the past eight quarters. That compares with four out of eight misses for Suncor.
“Whenever Canadian Oil Sands comes out with guidance, the presumption is that it will not be met,” said Randy Ollenberger, an analyst at BMO Capital Markets in Calgary. “When Suncor comes out with guidance, the expectation is that they will meet or beat guidance.”
Suncor is seeking to increase its Syncrude stake to 49 per cent from 12 per cent, which would make it the largest shareholder. The second-largest owner is Exxon Mobil Corp.-affiliate Imperial Oil, which holds 25 per cent and operates Syncrude. The other four owners are Murphy Oil Corp., Sinopec Group, Japan’s MocalEnergy Ltd. and Cnooc Ltd. through its Canadian subsidiary Nexen Energy.
Suncor spokeswoman Sneh Seetal reiterated comments from Williams’s Dec. 15 letter to Canadian Oil Sands shareholders that highlighted the premium they would earn by tendering their shares to Suncor as well as the lower risk of owning shares in a larger, more diversified company.