Another Bidder for Synenco Unlikely, but Is the Price Right?

Given that it has been a year since Synenco Energy Inc. (SYEYF.PK) kicked-off its strategic review process, anyone interested in the company’s Northern Lights oilsands project would likely have had a chance to take a good look by now.

As a result, it appears unlikely that another bidder will emerge to counter Total E&P’s (TOT) C$9 per share offer. However, given elevated oil prices, the French super-giant is getting this resource for a real bargain, according to Raymond James analyst Justin Bouchard, even when you consider both project and sector-wide risks.

“The flipside of course, is that Synenco shareholders aren’t in a very strong negotiating position,” he told clients, while downgrading Synenco to “market perform” from “strong buy” and cutting his price target from C$15 to C$9.

Based on the takeover price, Synenco’s cash position of C$230-million and Raymond James’ estimate of 817 million barrels of recoverable resource, the shares are trading at an enterprise value of C$0.30 per barrel, Mr. Bouchard said.

Blackmont Capital analyst Menno Hulshof told clients the deal is a “mild positive” for the M&A outlook in the oilsands, but thinks it is unlikely that a White Knight bidder will emerge.

However, he does think it is possible that Synenco’s largest shareholders – Wellington, DE Shaw and Capital Research, who control roughly 27% of its outstanding shares – choose to reject the offer and seek better terms. Mr. Hulshif does not believe a higher bid is likely though and moved his rating to “tender” from “buy,” while lowering his price target from C$11.25 to C$9.

Comments

[steve Ward]

Rising costs have hurt the oil sands business more than the Alberta tax hikes. Synenco's best possible scenario was to make a 9 percent return after borrowing several billion to develop the resource.

The Canadian oil sands business is consolidating to fewer players. Only the well heeled will power through. Only the existing oil sands companies with current production or soon to be production will survive. This means higher oil prices due to a longer development period. Canadian government projections of future oil sands production probably will not be met entirely.
Oil Sands quest could be another Synenco.