Imperial Oil Ltd. is laying the groundwork for billions of dollars worth of oil sands projects, but there is also growing speculation the company may be lining up a major acquisition.
Imperial, which is 69.6-per-cent owned by Exxon Mobil Corp., is one of a few large companies mentioned by analysts and investment bankers as having the financial heft to take advantage of weaker rivals whose share prices have been hurt by the sharp drop in oil prices. Its chief executive did not quell the talk on Wednesday.
"If there's something there that is of a lot of value to us, we'll seriously look at it," CEO Rich Kruger told an investor conference in Toronto. "But if not, we have a lot of other things that we're working on today that I think will add a lot of value over time as well."
Potential acquisition targets discussed are Cenovus Energy Inc., MEG Energy Corp. and Canadian Oil Sands Ltd., which owns the largest chunk of the Syncrude Canada Ltd. consortium.
Speculation has increased as oil-patch asset values languish, making it easier for well-capitalized firms to scoop up assets at a fraction of the cost it would take to build a new project. With numerous companies now facing a future of slower-than-planned growth, merger and acquisition activity is widely expected to ramp up.
In the oil sands, Imperial and Suncor Energy Inc. are seen as best positioned to capitalize on the current downturn. This is because of their strong financial positions, years of expertise in the highly complex field and extremely long-term planning.
This week, Suncor beefed up its stake in the $15-billion Fort Hills oil sands project, adding a 10-per-cent interest from Total SA for $310-million.
In a report, Bank of Montreal analyst Randy Ollenberger said Cenovus would make a top target for Imperial because of its well-defined growth blueprint and opportunities for further investment. It would also provide exposure to "some of the lowest cost oil sands assets available."
Canadian Oil Sands, meanwhile, would also be a logical buy for Imperial due to its own long history as a partner in Syncrude, and boost cash flow per share.
A senior investment banker said he was not aware of specific talks between Imperial and potential targets, but pointed out that the downturn is forcing companies to change tack.
"In this market environment, we're finding, generically, a lot of conversations going on that wouldn't otherwise happen," said the banker, who spoke on condition of anonymity. "The macro change has been so big that boards and senior management teams that are a little more enlightened understand that the usual playbook is out the window and you've got to start thinking about a broader strategic plan. In my view, that needs to include M&A."
Last week, Citigroup issued a report naming Imperial and Suncor likely "consolidators" and also pegging Cenovus, Canadian Oil Sands and MEG as top targets.
Cenovus is best known for the Foster Creek and Christina Lake steam-driven oil sands project, seen as being among the best performers in that segment of the industry. It is also a partner with Phillips 66 in major refineries in Illinois and Texas.
The company, led by chief executive Brian Ferguson, has made several moves to cope with oil's collapse, including reducing spending and dividends, cutting staff, issuing more than $1.5-billion of shares and selling its royalty and fee lands for $3.3-billion.
Meanwhile, four senior executives, including chief operating officer John Brannan, recently left the company, raising questions about a future successor to Mr. Ferguson.
The shares have fallen 36 per cent in the past year, fetching $19.84 on the Toronto Stock Exchange on Wednesday. That puts its market capitalization at about $16.6-billion.
Citi said it believes Cenovus's liquidation value is about $25 a share, suggesting any offer would require a hefty premium on top of that.
Besides any potential deal, Imperial is planning a $7-billion development at an oil sands lease called Aspen, as well as further expansions to its Kearl mining venture, north of Fort McMurray, Alta.
That last major takeover involving integrated Canadian oil companies, Suncor's $20.5-billion acquisition of Petro-Canada, also took place during a downturn – the financial crisis of 2008-2009. Many forecasters believe the commodity-price trough could last longer this time, however, which could prompt more deals.
Spokespeople for Cenovus and Canadian Oil Sands declined comment.
ConocoPhillips nearing deal to sell Canadian assets
ConocoPhillips Co., the third-largest North American oil and gas producer, is nearing a deal to sell several Western Canadian assets to various buyers including Canadian Natural Resources Ltd., people with knowledge of the matter said.
An agreement could be reached as early as this week, said the people, who asked not to be identified because the discussions are private. A deal hasn't been finalized and talks could still fall apart, the people said.
Production from the properties, in Alberta, British Columbia and Saskatchewan, represents about 20 per cent of the Houston-based company's Canadian volumes outside of the oil sands. The properties produce the equivalent of almost 35,000 barrels of oil and gas a day and include a net working interest in 2.4 million acres for future drilling, according to the marketing material for the assets, an area about the size of Cape Breton Island.
Based on that, the group of assets could be valued at $1-billion or more, according to data compiled by Bloomberg.
A spokesman for ConocoPhillips declined to comment, as did a spokeswoman for Canadian Natural.
ConocoPhillips is among producers that have turned to asset sales to shore up their balance sheets and focus on core areas after oil prices plunged by more than half since last year's highs.
Earlier this month, the company said it plans to reduce its workforce by about 10 per cent, or 1,800 jobs.