Canadian Oil Sands Could Face Competition in Its Syncrude Bid

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Includes: CEO, COP, COSWF, IMO, MUR, SU
by: Streetwise Blog

By Andrew Willis

Canadian Oil Sands Trust (OTCQX:COSWF) may face competition for a coveted 9% stake in the Syncrude oil sands project, as pension funds are rumoured to be in talks with potential vendor ConocoPhillips (NYSE:COP).

The hot rumor in Calgary this week – and there’s always a hot rumour or two in the oil patch – has one or more public sector pension funds negotiating with ConocoPhilips over the oil sands holding the U.S. energy giant put on the block last month. The Syncrude stake could be worth anything up to $4 billion, and ConocoPhillips wants to deploy this capital on new reserves.

Canadian Oil Sands already owns 37% of Syncrude and is widely viewed as the natural buyer of the ConocoPhillips block, a view that's been encouraged by executives at the trust.

Pension fund interest in Syncrude makes sense. These money managers are looking for long-life assets with steady cash flow. The funds would also be attracted to direct ownership of an oil play. The speculation in Calgary circles is that some sort of club deal may be in the works, with several of the big public sector plans in Ontario, Quebec, Alberta and B.C. combining forces to buy out ConocoPhilips.

A note of caution on this rumor: It’s just the sort of speculation that a seller would encourage when trying to vend an asset with a limited number of buyers. As investment bankers privately joke, it only takes one motivated buyer to run a successful auction. ConocoPhillips would love to see Canadian Oil Sands bid against itself.

Perversely, Canadian Oil Sands units could stage a one-day rally if the trust lost out on the Syncrude stake. At the moment, the prospect of issuing equity to fund the purchase from ConocoPhilips weighs heavy on Canadian Oil Sand's units.

The Syncrude project is run by Imperial Oil (NYSEMKT:IMO). The other partners in this 30-year-old oil play in northern Alberta are Suncor (NYSE:SU), Murphy Oil (NYSE:MUR) and Nexen (NXY).