Business | Oil & Gas
Oilsands stocks whipsawed by merger speculation after crude's massive fall
Canada's oilsands miners, developing the largest reserves outside Saudi Arabia, are being roiled by takeover speculation after the 72 per cent drop in crude prices delayed projects and ruined the outlook for profits.
- Bloomberg
- Published: 23:32 December 8, 2008
Toronto: Canada's oilsands miners, developing the largest reserves outside Saudi Arabia, are being roiled by takeover speculation after the 72 per cent drop in crude prices delayed projects and ruined the outlook for profits.
Nexen Inc and Opti Canada Inc, owners of the Long Lake oilsands mine in Alberta, soared as much as 53 per cent last week on the Toronto Stock Exchange after the Financial Times said France's Total SA planned a C$19.7 billion (Dh56.52 billion) offer for Nexen. Both retreated more than 10 per cent a day later when the Times of London said Total won't bid.
"There's a risk you'll see these companies go," said John Stephenson, who helps to oversee about $1.5 billion, including Nexen and Opti shares, at First Asset Investment Management Inc. in Toronto. "They're pretty much on bended knees at this point. The commodity is so much weaker now that it builds the case for takeovers."
Companies from Exxon Mobil Corp. to Suncor Energy Inc. are putting projects on hold after oil slid more than $106 a barrel as recessions in the US, Europe and Japan cut energy demand. Crude under $95 a barrel makes it unprofitable to develop oilsands, in which bitumen dug from mines or coaxed from the ground using steam is turned into oil, according to Ryan Todd, an analyst for Deutsche Bank AG in New York.
An equal-weighted index of four oilsands developers - Opti, Nexen, UTS Energy Corp and Petro-Canada - dropped 78 per cent this year, compared with a 41 per cent decline in the Standard & Poor's/TSX Composite Index and a 43 per cent retreat in a broader gauge of Canadian energy producers.
No cash
Opti lost 89 per cent in 2008 to C$1.77 after delaying expansion of the C$6.1 billion Long Lake mine, saying it doesn't have enough cash. UTS, an investor in the C$25.3 billion Fort Hills, Alberta project, became a penny stock, slipping from C$6.09 in May, while partner Petro-Canada retreated as much as 65 per cent from its peak that month.
Nexen fell to its cheapest valuation on October 10, when the shares traded for 3.2 times earnings over the previous 12 months. That's 80 per cent below the average price-to-earnings ratio over the past five years. Larger rival Suncor fell to 5.6 times earnings on Nov-ember 20, versus a five-year average of 23.
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