Oil patch feeding frenzy predicted
http://www.theglobeandmail.com/servlet/story/LAC.20070907.RRUBIN07/TPSto...
DAVID PARKINSON
September 7, 2007
The Canadian oil patch could be hit by a major round of takeovers by multinational giants in the next year, Jeff Rubin of CIBC World Markets predicts, as the global energy industry looks increasingly to Alberta's rich oil sands as one of the few major world oil reserves unfettered by political meddling.
Speaking at a conference for institutional clients, Mr. Rubin, the investment bank's chief economist and chief strategist, anticipates oil sands firms will receive premiums of 40 to 45 per cent - roughly in line with the prices paid in major takeovers in the energy sector as well as the premiums paid for major Canadian mining companies in the past year.
"The Canadian oil sands, as the single most important energy asset in the world open to private capital, its ownership will reflect the global oil industry. And the process in which the global oil industry is going to assert ownership over that sector is by buying out the people who own it now."
He said the oil sands offer both deep reserves and a government that doesn't insist on owning a piece of the action - which has fast become a rare combination as governments stake a bigger claim on key oil resources. In such places as Venezuela, Russia and Kazakhstan, governments have demanded ownership in major deposits, delaying development, chasing away major energy companies and costing them billions in writedowns.
"The fact of the matter is that most oil reserves in the world are now the exclusive preserve of state oil companies." As a result, he said, "the Canadian oil sands represent somewhere between 50 and 70 per cent of the investable oil reserves in the world."
He said that given the strong cash flows generated at current commodity prices, big oil companies wouldn't have to rely on debt markets to finance acquisitions, meaning the crunch in credit markets wouldn't pose an impediment.
Mr. Rubin also predicted that global oil prices will continue to climb, as the global economy remains "better than just fine," despite stumbles in the U.S. economy linked to the subprime. He predicted West Texas intermediate oil prices would average $80 (U.S.) a barrel in the fourth quarter, $90 a barrel in 2008, "and will hit triple digits by the fourth quarter of next year," fuelled by surging demand among developing economies.
Mr. Rubin's bullish outlook for energy is a key factor behind his prediction that Canadian stocks are poised for strong gains. "The meltdown of the U.S. subprime mortgage market will be temporary and a non-lethal shock to a continuing bull market in Canadian equities," he said.
He forecast that the S&P/TSX composite index would reach 15,000 within the next six months, and would reach 16,200 by the end of 2008 - up 17 per cent from yesterday's close of 13,795.69.
"If we're talking about the TSX, what really matters is how strong the global economy is, because so much of the TSX is energy and resources."
