Suncor to buy Petro-Canada

New York: Suncor Energy., the world's second-largest oil-sands producer, agreed to buy Petro-Canada for about Canadian $17 billion (Dh51.38 billion) to diversify and gain assets in the North Sea, North Africa and Latin America.

Owners of Petro-Canada will receive 1.28 shares of the merged company for each of their shares while holders of Suncor will get one share for each held, the Calgary-based companies said yesterday in a joint statement. The deal is priced approximately 25 per cent above Petro-Canada's 30-day weighted-average trading level.

Yesterday's deal is the second-biggest in the industry since January 2007, according to Bloomberg data. Suncor's purchase of Petro-Canada, the nation's second biggest refiner, will create Canada's biggest energy company and help it reduce reliance on high-cost oil-sands mines after crude prices tumbled more than $100 a barrel from a record.

Suncor reported the first quarterly loss in its history in January and slashed its capital budget after prices plunged and costs jumped.

The Ontario Teachers' Pension Plan increased its stake in Petro-Canada to 3.3 per cent in the fourth quarter and said it would push for ways to boost the share price after the stock lost half its value last year. The stock underperformed the Standard & Poor's/Toronto Stock Exchange Composite Index five years in a row, a period when oil prices almost tripled.

Petro-Canada fell C$1.25 to C$29.65 on March 20 on the Toronto Stock Exchange, giving it a market value of C$14.37 billion (Dh42.8 billion). The stock has risen 11 per cent this year.

Suncor, which lost 56 per cent of its market value last year, has jumped 30 per cent this year, the most among Canadian oil companies valued at more than C$1 billion (Dh2.98 billion). The stock dropped C$2.50 on March 20, ending last week at C$30.90.

CIBC World Markets and Morgan Stanley are advising Suncor while Petro-Canada is being advised by RBC Capital Markets and Deutsche Bank AG.

The new company will have a resource base of about 7.5 billion barrels of oil equivalent of proved and probable reserves, in addition to an estimated contingent resource base of approximately 19 billion barrels of oil equivalent.

Petro-Canada has international assets in the North Sea, Libya, Syria and offshore Trinidad and Tobago.

Suncor's oil sands operations are based near Fort McMurray in northern Alberta, where it recovers bitumen and upgrades it to refinery-ready feedstock and diesel fuel.

Suncor explores for natural gas in western Alberta and northeastern British Columbia. It also operates two refineries, an 85,000 barrel-a-day facility in Sarnia, Ontario producing gasoline, kerosene, jet and diesel fuels and a 93,000 barrel-a- day plant in Commerce City, Colorado producing gasoline, diesel fuel and paving-grade asphalt.

The deal is expected to close in the third quarter. The merged company's board of directors is expected to comprise 12 directors, including eight from Suncor's current board and four from Petro-Canada's board. Suncor Energy Chairman John Ferguson will serve as chairman of the new company.

On completion, Suncor's existing shareholders will own about 60 per cent and Petro-Canada shareholders about 40 per cent.

Most of Suncor's operations extract oil-soaked sand in northern Alberta with mechanical shovels and process bitumen into synthetic crude. The oil is shipped to refiners in southern Canada and the US Midwest for processing into gasoline, diesel, jet fuel and chemicals.

Suncor is Canada's third-biggest oil and gas producer by market value, while Petro-Canada ranks sixth.