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Teck Resources raises oil sands ante
Gary Park For Petroleum News
Teck Resources, Canada’s largest producer of metallurgical coal and zinc, is taking an even bolder step into oil sands mining with a C$435 million bid to acquire SilverBirch Energy, its 50 percent partner in the Frontier lease.
If the transaction is ratified by two-thirds of SilverBirch shareholders and closes as expected by April 16, all of Alberta’s oil sands mining projects will be in the hands of major companies.
But Teck Chief Executive Officer Don Lindsay has left the door open to a new joint-venture partner to help fund the development.
He said the deal is designed to simplify the Frontier ownership and reduce Teck’s exposure to oil sands leases that do not lend themselves to mining.
Phil Skolnick, an analyst with Canaccord Genuity, said Suncor Energy, which holds 80 percent of the Fort Hills mining project, with Teck owning 20 percent, becomes a “natural fit” for a partnership.
Two leases underpin project Frontier and a lease called Equinox underpin plans to produce 2.8 billion barrels of bitumen, reaching output of more than 277,000 barrels per day by 2030.
SilverBirch filed plans with Canadian regulators at the end of November to invest C$22.9 billion and start production in 2021, after spending C$400 million prior to a final investment decision in 2014 or 2015.
Teck has offered C$8.50 cash per share to SilverBirch shareholders, equivalent to 30 cents per barrel for 1.4 billion barrels of contingent resources.
In addition, it is offering SilverBirch shareholders one share of a new company, SilverWillow Energy, which will control the remaining in-situ assets of SilverBirch.
Teck will also provide C$25 million in working capital for SilverWillow, which plans to prove up 1.7 billion barrels of discovered bitumen resources in place and focus on its principal asset, which is designed to produce up to 40,000 bpd.
SilverBirch Chief Executive Officer Howard Lutley — underscoring the difficulty for junior mining companies of proceeding with oil sands mining operations — said his company would have needed to raise up to C$500 million in equity over the next three years to get Frontier sanctioned.
From the outset, investors were told the “little company” could not effectively participate in Frontier, he said.
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