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Canada’s oilsands are not high on the list of investor must-haves at a time of depressed oil prices, potentially higher provincial royalties and tougher climate change regulations.
But those are also the reasons oilsands pioneer Suncor Energy Inc. launched a $6.6-billion unsolicited bid Monday for Canadian Oil Sands Ltd. (COS), the largest shareholder in once arch-rival Syncrude Canada Ltd. and lately a challenged, underperforming operator.
In short, Suncor has figured out how to make money in a potentially lower-for-longer downturn (its operating costs are $28 a barrel and heading lower); Syncrude is struggling to adjust (comparable costs are $52.63 a barrel); Suncor believes it can push Syncrude to improve. If oil prices recover, Suncor will have cemented its position as Canada’s oilsands kingpin and will be laughing all the way to the bank.
“If you look at the way reliability and operating costs are going, it’s a very successful business, even at these low oil prices,” Suncor President and CEO Steve Williams said in an interview. “We would be giving the (Syncrude) operator much more support … so we can accelerate the reliability improvement.”
Suncor won a seat at the Syncrude partners’ table after its takeover in 2009 of PetroCanada, another strategic move made during an oil crash.
Suncor and Syncrude were for decades the major operators in the Fort McMurray region and competed fiercely from their adjacent leases, Suncor the entrepreneurial first mover, Syncrude the consortium guided by the more institutional, Imperial Oil Ltd./Exxon Mobil Corp. culture.
Suncor approached Canadian Oil Sands, the largest Syncrude partner with a 37 per cent stake, for “a gentle first time” in March to finally get together, Williams said, and then again in April with a written offer and discussion with board chairman Don Lowry, which was taken to the full board. Both were rejected due to lack of interest.
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