Buffett deal stirs oil sands interest

Legendary investor Warren Buffett has put a positive spin on Alberta’s vilified oil sands sector by investing — through his Berkshire Holdings — in production giant Suncor Energy.

But his stake is valued at just C$610 million, representing a slim 1.2 percent ownership stake in the company — a trifling amount compared with his 2009 move on Burlington Northern Sante Fe when he enlarged his stake by a massive US$26.5 billion.

Even so, his move is being rated as a bullish one for a stock that has delivered zero gains to investors over the past eight years, despite a 75 percent surge in oil prices.

On a visit to the oil sands five years ago, Buffett said he had gained an understanding of the energy operations in northern Alberta that he could apply at a later date.

If he follows the strategy used for BNSF, that could be significant. He initially bought just 10.9 percent in the railroad in 2007 before ramping up to 100 percent within 30 months, delivering a handsome premium to investors in the process.

Sam La Bell, an analyst at Veritas Investment Research in Toronto, said Buffett’s entry comes at a time when “a lot of the U.S. market has definitely backed off” the oil sands in the face a heavy criticism from groups opposed to developing the resource and uncertainty over whether there will be sufficient pipeline capacity out of Alberta to match the anticipated growth in production from 1.8 million barrels per day in 2012 to 5.2 million bpd in 2030.

One of the most attractive aspects of Suncor for big investors is the company’s liquidity. It has a current market value of more than C$50 billion and has about 1.5 billion shares outstanding, making it easier for investors to move in and out without causing unnatural swings in the share price.

Among analysts there is a belief that Buffett may view Canada’s energy industry as presenting greater opportunities than the U.S. where growing production is pushing the country closer to energy independence.

That stirs interest in Canadian Oil Sands (which owns more than one-third of the giant Syncrude Canada consortium), Athabasca Oil, Cenovus Energy and Canadian Natural Resources.

—Gary Park