ConocoPhillips Facing Tough Talk in Effort to Unload Oil Sands Stake

By Andrew Willis

On the face of it, it should be relatively simple for ConocoPhillips (COP) to dump its 9% stake in the Syncrude oil sands project.

The U.S. energy company is a motivated seller - management has promised to shed $10 billion in assets - and across the table sits an obvious buyer.

Canadian Oils Sands Trust (COSWF.PK) is the single largest Syncrude stakeholder, with a 37% stake, and CEO Marcel Coutu clearly stated recently that the trust wants to consolidate ownership. His exact words: “We'll continue to look outside Syncrude, but our greater interest would be over the fullness of time to consolidate our own partners - when they decide for their own strategic reasons to get out of Syncrude.”

None of the other Syncrude partners - Imperial Oil (IMO), Suncor (SU), Nexen (NXY), Mocal Energy and Murphy Oil (MUR) - are expected to bid for ConocoPhillips’ stake. Based on current prices for Canadian Oil Sands units, the ConocoPhillips position is worth $3.6 billion.

The project, while attractive from a cash flow point of view, is controlled by Imperial Oil and is relatively mature. The upside for large energy companies is spending capital on new reserves. Energy trusts, on the other hand, focus on milking properties that are fully explored.

However, advisors in Calgary who are familiar with the politics of Syncrude’s ownership group predict sealing this deal will be difficult, as both sides go in thinking they have the upper hand.

"Sometimes the toughest deals are ones where you only have one buyer and one seller. Each side tries to exploit its perceived leverage," said one investment banker who works with Canadian Oil Sands and the other Syncrude partners.

Canadian Oil Sands has the financial strength needed to buy the ConocoPhillips stake, though it would likely issue a raft of new units to fund the purchases, with a sale of 100 million units worth $3 billion potentially in the cards.

The energy trust released quarterly financial results on Wednesday, and increased its distributions by 40% to 35 cents a quarter from 25 cents, and BMO Nesbitt Burns analyst Randy Ollenberger said in a report: “The decision to raise payouts reflects the higher confidence in crude oil prices, as well as strong Syncrude production volumes in the third quarter.”

Canadian Oil Sands has a $14-6 billion market capitalization. The trust has increased its stake in Syncrude by buying out partners on three occasions in recent years.

Comments

[bindlepete:]

The open question on the shovel and truck recovery method is:
Can they compete with cleaner and cheaper(?) In situ methods of delivering the bitumen and heavy oils?

PetroBank with it's THAI system could cut the legs out from under these surface mining techniques although it would help PetroBank to have them about to maintain a high marginal price to profit beneath.

Time will tell. A new age may be arriving.

Oct 29 10:55 AM