Hostile takeover fight extended

Suncor, Canadian Oil Sands given until early 2016 to end squabbling; securities regulator says both firms playing ‘hardball’

GARY PARK

For Petroleum News Bakken

Two months of sharp-edged, tit-for-tat exchanges over Suncor Energy’s hostile bid to acquire Canadian Oil Sands are now set to last another month, raising hopes among investors in the targeted company that they can land a belated Christmas gift.

Suncor’s extension to Jan. 8 of the previous Dec. 4 deadline on its C$6.9 billion all-shares offer, including the assumption of debt, shows again that Canada’s largest oil sands operator is eager to expand its 12 percent stake in the Syncrude Canada consortium by absorbing the 37 percent stake that COS holds.

However, Suncor has given no signal that it is ready to raise its terms, although it has hired JPMorgan Chase & Co to advise on its bid.

It set the new expiry date after the Alberta Securities Commission gave COS until Jan. 4 to find alternative buyers.

ASC chairman Stephen Murison said it is clear both companies are playing “hardball” in the dispute, but added “hardball is allowed.”

He also said the ASC is satisfied that the process COS is engaged in to find a better deal is “real” and “active” and that it could benefit from the extended deadline.

Suncor Chief Executive Officer Steve Williams said “the pressure is clearly on COS’s board and management to prove they are acting in someone’s interest other than their own.”

“The Alberta Securities Commission decision allows COS more time to surface a superior offer from a credible third party, something most analysts see as unlikely.”

Williams claims his company has approached 60 percent of COS’s institutional investors and that the “majority” endorsed the bid.

COS calls bid undervalued

COS said the extension allows its shareholders to absorb information about the COS 2016 capital budget, which has been cut to C$298.5 million from the C$451 million estimated for 2015.

COS Chief Executive Officer Ryan Kubik said Syncrude’s ability to “reduce costs and respond to the lower oil price environment is exceeding market expectations.”

The company said that even if West Texas Intermediate prices remain below US$45 per barrel it could “fully fund all costs, including capital expenditures and the current dividend.”

It expects to generate C$338 million in free cash flow next year which assumes production of 38.6 million barrels for the year, about 10 percent higher than this year.

No desire to compete

National Bank Financial analyst Kyle Preston said in a research note that the COS budget assumptions “may prove to be somewhat optimistic as the company has not achieved its initial production guidance in recent history,” reinforcing one of Suncor’s key arguments that COS is poorly managed.

David Harrison, head of JPMorgan’s natural resource investment banking in Canada, noted that COS has failed to say whether the parties it claims are interested in a counterbid have their sights set on the whole company, or what price they were considering.

Claiming that it typically takes about four weeks for an arrival bid to surface, he said in a court document that “it is unusual for serious bidders to move as slowly as the partied identified by the COS board when there is an unsolicited offer outstanding.”

“In my experience, truly interested parties would have executed confidentiality agreements and scheduled management presentations within one to two weeks of the announcement of the Suncor offer” in early October.

Tristram Mallett, a member of the COS legal team, accused Suncor of issuing passive-aggressive threats and objected to that company’s portrayal of COS as a “financial basket case.”

“There’s a lot of fear-mongering going on here,” he said.