All eyes on $4B Syncrude stake
By Deborah Yedlin, Calgary Herald
October 30, 2009
ConocoPhillips' stake in Syncrude is up for grabs. Will the taker be an existing co-owner of Syncrude or will a new player--even a foreign national oil company--buy it as an entree into the oilsands?
Who is going to buy ConocoPhillips' nine per cent interest in Syncrude?
That was the question in Canada's oilpatch this week as investment bankers, industry players and institutional investors digested the announcement by the U.S. energy giant that it was going to be selling its Syncrude stake as part of the $10-billion US divestiture program announced earlier this month.
The talk in the oilpatch, following the initial announcement about the divestiture, was that it was unlikely Syncrude would go on the block for a number of reasons. One related to the fact that ConocoPhillips, being levered to natural gas, could benefit from having some more exposure to oil prices. A hands-off, non-operated interest in what is undoubtedly a legacy asset that effectively threw off a fairly predictable amount of cash seemed to be a good place to be.
The other observation dispensed was that ConocoPhillips, when it does undertake divestiture programs, tends to exit countries entirely. By extension, then, Canada appeared not to be on the map, not just because of the Syncrude piece, but also because of the natural gas assets in Western Canada, not to mention its refining deal with EnCana's new integrated oil company, Cenovus.
Given the current economic realities, all that reasoning is off the table in the interest of monetizing assets and using the monies made, elsewhere.
There are three obvious possibilities as to who might step up with a cheque written out for about $4 billion.
The first, of course, is Canadian Oil Sands Trust. The company already owns the largest chunk of Syncrude, at 36.7 per cent, and eliminating one more ownership voice at the table would make eminent sense from a management perspective.
Canadian Oil Sands' third-quarter numbers released on Wednesday were a splash of cold reality, showing how much the energy markets have shifted since the third quarter of last year. Still, reflecting an optimistic outlook, the company raised its quarterly distributions.
The question is whether that optimism is enough for Canadian Oil Sands to step up and buy in the ConocoPhillips stake.
While it's a huge amount of money, the good news is the capital markets are more receptive to energy companies raising money than they have been for the better part of two years. If Canadian Oil Sands needed to tap the markets to get the deal done, this would be the time to do it.
Of the other current members at the table, the other possibility is Imperial Oil, which reported its third-quarter earnings on Thursday.
Imperial, which owns 25 per cent of Syncrude, also has one of its own installed as president and chief executive officer of the company. The main argument against Imperial adding to its position is that the company is going full speed ahead on its Kearl Lake project, and from a capital standpoint might prefer to allocate what it would cost to buy the ConocoPhillips stake to that undertaking.
The other obvious possibility is foreign buyers. Not long ago, PetroChina struck a deal to buy a 60 per cent working interest in Athabasca Oil Sands MacKay River and Dover oilsands projects for $1.9 billion Cdn. The sense among those in the know is that there could be other Chinese entities in getting a seat at the Syncrude table, not to mention the ongoing rumours of Italy's ENI still looking to take a position in Canada's oilsands. Of course, a national oil company is going to have an easier time in coming up with the cash necessary to close a deal of this size, but the question is whether it would trigger anything on the Industry Canada side of the equation. The other issue is whether the other members of the consortium would welcome a national oil company, with its arguably different agenda, at the table.
Finally, and this might be a long shot, there's Alberta's Investment Management Corporation to put on the list of possible buyers.
In an interview earlier this month, AIMCo's chief executive said a decision had been made within the organization that moved it away from not investing in Alberta, particularly in the energy sector. At issue, said Leo de Bever, is whether the investment would make economic sense and provide the expected returns, not whether it was based in Alberta, or not. The reality is that de Bever has put together some impressive --and complex--deals over the years during his tenure at other big pension funds. It also means he has the connections to perhaps bring in another player or two to buy the ConocoPhillips stake.
In short, there might be some buyers that make more sense than others, but it's also a fact that there are names out there that have wanted to find an entree into the oilsands world and the decision by ConocoPhillips to sell its interest provides just that opportunity.
On the other hand, having one less owner at the table might be compelling enough for one of the current owners to add to their existing position.
Between the fact it is a good asset and that the capital markets are open for business, as sale processes go, this one is bound to be easier than most.
dyedlin@theherald.canwest.com
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