Suncor Energy head office in Calgary.Todd Korol/Reuters
News flash: Oil company CEOs would rather that oil prices were higher than they are now.
Even so, Suncor Energy Inc.'s Steve Williams may want to thank OPEC, at least in some small way, for holding off on any moves to jolt prices back from depressed levels.
The renewed fall in crude may well cement Suncor's $4.3-billion hostile takeover bid for Canadian Oil Sands Ltd. as its deadline draws near, even if some professional investors say they refuse to tender.
Last week, Suncor extended its all-share offer for its Syncrude Canada Ltd. partner after the Alberta Securities Commission ruled that Canadian Oil Sands' shareholder rights plan could be in force until Jan. 4. That was a relief for the takeover target, whose chief, Ryan Kubik, has blasted the approach as "opportunistic" and "exploitive." But now it's go time for his company and its financial advisers in their quest to scare up a higher offer. The company has said four interested parties have signed confidentiality agreements, allowing them to pore over the books.
The Organization of the Petroleum Exporting Countries' meeting in Vienna last week yielded only more widespread belief that the world's oversupply of oil will actually grow. West Texas Intermediate has slumped to its lowest levels since the financial crisis almost seven years ago, making Canadian Oil Sands' efforts much tougher.
It has said often that one of its big draws as a 37-per-cent owner of Syncrude is its "torque" to crude prices. That is, because it hasn't complicated its structure by adding other businesses, its shares will be the quickest to snap back when crude does. That's the beauty of a pure play. It's also the risk.
In the OPEC club, Iran is anxious to pump more crude into a market that has more than enough. Some members have called for a return to curbs on output, but Saudi Arabia is adamant that major non-OPEC producers join in with their own reductions. Odds of that happening are slim at best. Mexico, for instance, says it has no intention of doing so as it seeks foreign investment to arrest production declines.
Meanwhile, U.S. shale oil output has been slow to plateau, even as companies chopped spending and slashed the rig count. It all makes it harder for would-be white knights to step up and outbid Suncor. They have their own shareholders and bankers to keep happy in a worsening environment, and unless they have a competitive advantage, Canadian Oil Sands is a difficult buy.
Open-pit mining, hydrotransport, extraction, upgrading – Syncrude's an aging engineering marvel whose complexity would confuse Rube Goldberg. At the best of times, it produces light sweet oil by the hundreds of thousands of barrels a day. Too often it has suffered from operational mishaps that have forced Canadian Oil Sands to chop annual output forecasts. It happened again on Tuesday, when the company said it must take a major process unit off-line six months earlier than planned to deal with a buildup in residue.
Low oil prices have squelched financial returns for all of the owners, even Suncor, which has a 12-per-cent stake. Mr. Williams has said he would deploy more of Suncor's resources and expertise to help improve the operation's reliability if he had a stake large enough to make it interesting.
As it stands, the second-largest interest holder, Imperial Oil, operates the sprawling project under a management contract that taps the know-how of its parent, Exxon Mobil.
Imperial is the most logical potential rival bidder, and buying its partner would give it a majority of the equity in Syncrude. The question is: Does it want the extra stake, while at the same time expanding its newer and shinier Kearl oil sands project amid falling oil prices? So far, Imperial has sent out its trademark "we don't comment on speculation" response to such queries.
Some of Canadian Oil Sands' institutional shareholders blast Suncor for a low-ball bid at the bottom of the market, vowing not to sell before what could be a a big resurgence for their company.
But time's growing short, and the oil market is providing none of the torque it could use right about now. It's undoubtedly galling for Mr. Kubik as his counterpart at Suncor talks trash, criticizing his credit rating and accusing his board of putting its own interest ahead of shareholders'.
OPEC may just have afforded Mr. Williams more reason for swagger.
Jeffrey Jones