Canadian Oil Sands: Why a Larger Syncrude Holding Makes Sense

By Andrew Willis

It doesn’t take the Street long to crunch the numbers on a deal, even if that deal’s not done.

With ConocoPhillips’ (COP) 9% stake in the Syncrude oil sands project officially up for grabs, analysts are firing out estimates of what the acquisition of the holding would mean for the most likely buyer, Canadian Oil Sands Trust (COSWF.PK).

At RBC Dominion Securities, a report early Thursday said: “In [our] mind, the planned sale of ConocoPhillips’ 9% interest in Syncrude is Canadian Oil Sand’s to lose, with the transaction supporting 3% to 4% cash flow per unit accretion.”

Canadian Oil Sands released its financial results on Wednesday, and cash flow per unit was 61 cents in the third quarter. The trust, which owns 36% of Syncrude, raised its quarterly distribution yesterday by 40%, to 35 cents a unit from 25 cents.

Other Syncrude partners are expected to take a pass on ConocoPhillips’ stake - they are project operator Imperial Oil (IMO), along with Suncor (SU), Nexen (NXY), Mocal Energy and Murphy Oil (MUR). Analysts say while financial players such as sovereign wealth funds may take a look at the U.S. oil company’s Syncrude position, they are unlikely to match Canadian Oil Sands in a bidding war that features a $3 billion-plus price tag.

Comments

[Steven Ward:]

COS paid Talisman 400 plus million for Talisman's 1.25 percent interest in Syncrude so 3 billion might be a slight bargain for COS.

Doubt if a foreign buyer will appear due to the lack of pipeline capacity flowing to Vancouver.

Nexen and Suncor will probably do a deal with each other on Buzzard in the North Sea so probably no selling their Syncrude assets.
Unless Nexen wants the money for buying Buzzard from Suncor.

Imperial is committed to Kearle and other heavy oil expansion projects so no interest there.

That leaves Murphy Oil. Murphy wants to expand a refinery to an additional 175 to 200 thousand barrels per day.
So that leaves only COS and Murphy as buyers because Suncor and Nexen are like Imperial, already have bitumen projects on the boards.
Two buyers may be enough to heat up the bidding. Maybe just maybe.
Otherwise COS would be in the driver's seat.
One to two bidders that'sit, I think.

Oct 30 10:48 AM

[R.Biese:]

This is a world class asset so use international valuations.
News says XOM is paying $4 billion for 25% stake in Ghana Jubilee field. One estimate of it's peak production rate is 120 kb/d (but unsure on this number). So fresh, produce-able, international reserves valued at $133,000 /(peak kb/d). Giving a 50% premium for 'peak/average' this comes in at $200,000 /(flat kb/d)
The article's $3 billion price tag for 9% of Syncrude at 289 kb/d (2008 avg) is $115,000/(flat kb/d) with ?40? yr reserve life. A proven, producing asset. Permitted, built, hooked up & flowing. Making money at US$40/bbl.
Q: Why is there so much of a disconnect between international valuations and Cdn oil sand valuations for producing assets?
Q: Has Bay/Wall Street convinced Calgary/Houston to part with their assets at half price... again?
Q: Was March/09 a '10 cents on the dollar' fire sale of the next decade? A "buy Microsoft in 1994" moment? (I suspect 15 years from now the answer will be "Yes"... with a comparable chart.)
<start personal rant>
IMHO, new pipes to the West coast for both sco & ng should be built to get international pricing & international valuations on assets.
There is an urgent need for some new kahonas to be grown in Ottawa & Edmonton to withstand the Bay/Wall Street pressure/clutter/noise. Canada has ~10% of global proven oil reserves just in the oil sands. Act like owners not custodians of an international 'gift to the world'.
Only a fool would 'think so small'.
<end personal rant>

Oct 30 01:26 PM