Suncor launches hostile offer to buy Canadian Oil Sands



Canada’s biggest energy company is promising Canadian Oil Sands shareholders higher dividends as it seeks to take advantage of plunging crude prices to add production in Alberta.

CALGARY — Suncor Energy is looking to add another big chunk to its vast oilsands holdings — and take advantage of a prolonged rout in crude prices — with an unsolicited takeover bid for Canadian Oil Sands Ltd., the largest partner in the Syncrude mine north of Fort McMurray, Alta.

Analysts warn that the world could be one geopolitical event away from an oil price spike as the global safety cushion for production disruptions sinks to historic lows.

Suncor said Monday it’s offering $4.3 billion in its own shares and would take on about $2.3 billion of debt owed by Canadian Oil Sands, making the total transaction worth $6.6 billion.

Suncor says the offer would give shareholders of Canadian Oil Sands a stake in Canada’s largest integrated energy company, which includes the Petro-Canada chain of fuel stations as well as its own oil and gas production and refining operations.

The offer value is also 43 per cent above the market value for Canadian Oil Sands, based on closing prices at the Toronto Stock Exchange on Friday.

Canadian Oil Sands stock shot up nearly 50 per cent amid speculation that a rival offer may emerge while Suncor shares dipped slightly in early trading.

Suncor said its offer will be open until Dec. 4, although it could be withdrawn or the deadline could be extended.

“We believe this is a financially compelling opportunity for COS shareholders,” Steve Williams, Suncor’s president and chief executive officer, said in a statement.

“We’re offering a significant premium to COS’ current market price and also providing exposure to a meaningful dividend increase. We’re confident in the value this Offer provides to COS shareholders.”

Fort Hills

Fort HillsSuncor Fort Hills oil sands mining project is located in Alberta’s Athabasca region, 90 kilometres north of Fort McMurray.

The offer hasn’t been accepted by the Canadian Oil Sands board.

On a conference call, Williams said Suncor made a few overtures to its target in the spring, but was rebuffed.

Crude oil prices have declined by 17 per cent since then, now sitting well below US$50 a barrel. The share price value of Canadian Oil Sands has been dragged down with it, Williams noted.

“There is now a broad consensus among analysts and industry experts that we are in a structurally ’lower for longer’ oil price world,” said Williams.

“We remain convinced there are significant benefits to a transaction for all interested parties. However, given the deterioration of market conditions and the more pessimistic prevailing view on an oil price recovery, we believe the value of COS has declined since the previous offer was made.”

Suncor went shopping during the last major crude downturn in 2009, absorbing Petro-Canada in a blockbuster deal.

Canadian Oil Sands is a widely held company, with no shareholder owning more than six per cent of the common shares according to public data compiled by Thomson Reuters. Its largest shareholders are institutional investors.

Canadian Oil Sands has a 37 per cent stake in the Syncrude oil sands operation and Suncor owns 12 per cent. Othar Syncrude partners are: Imperial Oil with 25 per cent, Sinopec (nine per cent), Nexen (seven per cent), Murphy Oil and Mocal Energy (five per cent each.)

According to Thomson Reuters data, TD Asset Management is the largest shareholder in Canadian Oil Sands, with about five per cent of COS common stock. Other investors include funds managed by Franklin, Deutsch Asset & Wealth, CIBC, Blackrock and Vanguard.

Suncor is offering one-quarter of a Suncor share per COS share. In the first minutes of trading Monday, Suncor shares were down 87 cents at $34.50, making its offer worth nearly $8.63 at the time. COS shares were trading at $9.10.


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Ratings cut on Chesapeake Energy, other oil and gas producers :Outlooks Cut to Negative by S&P in Oil Slump


Exxon Mobil Corp. and Chevron Corp. were among several U.S. oil and natural gas producers that had their outlooks or ratings cut by Standard & Poor’s as the industry suffers from weak crude prices, hurting their cash flow and liquidity.

S&P cut ratings for Chesapeake Energy Corp., Denbury Resources and Whiting Petroleum Corp., while giving Exxon and Chevron “negative” outlooks, the ratings agency said Friday in a statement. Exxon “has substantially more debt than during the last cyclical commodity price trough in 2009, while upstream production and costs are at similar levels,” S&P analysts Thomas Watters and Carin Dehne-Kiley said.

Oil prices have fallen 58 percent from last year’s peak, threatening $1.5 trillion in North America energy investments, according to Wood Mackenzie Ltd.  Oil has been stuck near $45 a barrel as U.S. crude stockpiles stay about 100 million barrels above the five-year seasonal average and OPEC pumps at near-record levels.

Exxon is one of only three U.S. industrial issuers to have a triple-A bond rating, along with Johnson & Johnson and Microsoft Corp. The oil company has held that grade from S&P since at least 1985, according to data compiled by Bloomberg.

The last U.S. company to lose the triple-A designation from S&P, as well as Moody’s Investors Service, was Automatic Data Processing Inc., which was stripped of the ratings after spinning off its auto-dealer services unit in April 2014.

Chevron has been rated AA by S&P since at least July 1987, Bloomberg data show.

“Most rating actions reflect lower credit-protection measures, negative cash flow, and uncertainty about liquidity over the next 12 months,” S&P said in the statement.

Suncor Boosts Stake in Fort Hills Oil Sands Project

Suncor Energy Inc. is deepening its exposure to its Fort Hills oil sands mine, buying an additional 10-per-cent stake even as oil prices languish under $50 (U.S.) a barrel.

Calgary-based Suncor said on Monday it would pay $310-million to France’s Total SA, boosting its ownership stake to 50.8 per cent. The $13.5-billion mine in Northern Alberta is expected to begin pumping crude in late 2017, adding 180,000 barrels per day of new capacity over time.

The deal comes with U.S. and world oil prices trading at less than half the levels of a year ago, fuelling expectations of increased deal-making as companies seek to offload assets to patch up balance sheets.

Suncor said the added spending associated with the transaction would be covered within its current budget of $5.8-billion to $6.4-billion.

Total said the sale further reduces its exposure to Canada’s high-cost oil sands. The company last year scrapped a separate mining venture called Joslyn. It expects to save about $700-million by shrinking its ownership share in Fort Hills to 29.2 per cent.

The deal is expected to close by the end of the year. Teck Resources Ltd. owns 20 per cent of the joint venture.

Goldman Cuts Oil Price Forecast – that could drive prices as low as $20 a barrel.

crude oil: Oil is spilling from the barrel, isolated on white background


SEOUL (Reuters) – Crude oil prices fell on Friday as a stronger dollar, Saudi Arabia’s dismissal of a producer summit and a lower price forecast by Goldman Sachs weighed, with prices headed for a weekly loss despite rallying in the previous session.

October Brent, the global oil benchmark, decreased 51 cents to $48.38 a barrel as of 0659 GMT after it settled up $1.31, or 2.8 percent, at $48.89 on Thursday.

October U.S. crude futures lost 65 cents to $45.27 a barrel after it settled up $1.77, or 4 percent, at $45.92 a barrel.

Saudi Arabia believes a summit of heads of states of oil producing countries would fail to produce concrete action toward defending oil prices, sources familiar with the matter said on Thursday.

The comments followed a meeting of Gulf Arab oil ministers with Qatar’s emir in Doha, at which a Venezuelan proposal for an OPEC and non-OPEC summit was discussed.

The U.S. dollar edged higher in Asian trading on increased chances of more easing in Japan. A firmer U.S. dollar makes oil more expensive for holders of others currencies.

Goldman Sachs forecast on Friday 2015 WTI prices at $48.10 per barrel from an earlier estimate of $52 per barrel. It also lowered the 2016 WTI price forecast to $45 per barrel from $57 per barrel earlier.

Goldman also predicted 2015 Brent prices at $53.70 per barrel from $58.20 per barrel earlier, while it saw 2016 Brent prices at $49.50 per barrel from $62 per barrel earlier.

Oil prices rallied on Thursday after U.S. Energy Information Administration (EIA) data showed demand for gasoline over the latest four-week period rose almost 4 percent from a year ago.

Crude inventories were up 2.6 million barrels to 458 million barrels in the past week, compared with analysts’ expectations for an increase of 933,000 barrels.

Yet crude stocks at the Cushing, Oklahoma, delivery hub fell by 897,000 barrels to 56.41 million barrels, EIA said.

“Crude oil stocks appear to be stabilizing as refinery demand continues to fall, not surprisingly as refining margins have considerably weakened,” BNP Paribas said in a note.

Russia’s energy minister expects cuts in global shale oil production to help stabilize the oil market. Alexander Novak also reaffirmed that Russia, one of the world’s top oil producers, would not cut its own production.

Asian shares edged higher on Friday following gains on Wall Street while the dollar steadied, but gains were capped by uncertainty over whether the U.S. Federal Reserve will raise interest rates next week.

The global surplus of oil is even bigger than Goldman Sachs Group Inc. thought and that could drive prices as low as $20 a barrel.

While it’s not the base-case scenario, a failure to reduce production fast enough may require prices near that level to clear the oversupply, Goldman said in a report e-mailed Friday. The bank cut its forecast for Brent and WTI crude through 2016 on the expectation that the glut will persist on OPEC production growth, resilient supply from outside the group and slowing demand expansion.

“The oil market is even more oversupplied than we had expected and we now forecast this surplus to persist in 2016,” Goldman analysts including Damien Courvalin wrote in the report. “We continue to view U.S. shale as the likely near-term source of supply adjustment.”

Goldman trimmed its 2016 estimate for West Texas Intermediate to $45 a barrel from a May projection of $57. The bank also reduced its 2016 Brent crude prediction to $49.50 a barrel from $62.

WTI for October delivery fell as much as $1.16, or 2.5 percent, to $44.76 a barrel on the New York Mercantile Exchange and is heading for a weekly decline. Prices are down 16 percent this year. Brent for October settlement is 3.6 percent lower this week.

Global Glut

Oil in New York has slumped more than 25 percent from its June closing peak amid signs the glut will persist. Leading members of the Organization of Petroleum Exporting Countries are sustaining output, while Iran seeks to boost supply once international sanctions are lifted. U.S. stockpiles remain about 100 million barrels above the five-year seasonal average.

“We now believe the market requires non-OPEC production to shift from our prior expectation of modest growth to large declines in 2016,” Goldman said. “The uncertainty on how and where that adjustment will take place has increased.”

U.S. Output

The U.S. pumped 9.14 million barrels a day of oil last week, almost 3 million barrels above the five-year seasonal average, according to data from the Energy Information Administration. While the EIA this week cut its 2015 output forecast for the nation by 1.5 percent to 9.22 million barrels a day, production this year is still projected to be the highest since 1972.

U.S. output will need to decline by 585,000 barrels a day next year and other non-OPEC production will need to fall by 220,000 barrels a day for the global surplus to end by the fourth quarter of 2016, Goldman said. Saudi Arabia, Iraq and Iran will drive supply growth from OPEC, the bank said.

Shale oil production in the U.S. will drop 9 percent next year as a crude price below $50 a barrel “slams brakes” on years of growth, the International Energy Agency said in its monthly market report Friday. Output is forecast to fall by 385,000 barrels a day next year to 3.9 million barrels a day. Total non-OPEC supply will drop by 500,000 barrels a day next year, according to the IEA.

OPEC, the supplier of 40 percent of the world’s crude, has produced above its 30-million-barrel-a-day quota for the past 15 months. Iranian Oil Minister Bijan Namdar Zanganeh has vowed to increase output by 1 million barrels a day once sanctions are removed as the nation seeks to regain market share.

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Shilling : “Oil is headed for $10 to $20 a barrel.”

If crude’s slump back to a six-year low looks bad, it’s even worse when you reflect that summer is supposed to be peak season for oil.

U.S. crude futures have lost 30 percent since the start of June, set for the biggest drop since the West Texas Intermediate crude contract started trading in 1983. That beats the summer plunges during the global financial crisis of 2008, the Asian economic slump in 1998 and the global supply glut of 1986.

It even surpasses the decline of 2011, when prices fell as much as 21 percent over the summer as the U.S. and other large oil-importing nations released 60 million barrels of oil from emergency stockpiles to make up for the disruption of Libyan exports during the uprising against Muammar Qaddafi.

WTI, the U.S. benchmark, fell to a six-year low of $41.35 a barrel Friday. It may slide further, according to Citigroup Inc.

“Summer is when refineries are all running hard, so actual demand for crude is as good as it gets,” Seth Kleinman, London-based head of energy strategy at Citigroup Inc., said by e-mail.

OPEC’s biggest members are pumping near record levels to defend their market share and U.S. production is withstanding the collapse in prices and drilling. The oil market is still clearly oversupplied and “it will get more so as refiners go into maintenance,” Kleinman said.

Oil demand usually climbs in the summer as U.S. vacation driving boosts purchases of gasoline and Middle Eastern nations turn up air-conditioning.

Crude has sunk this year even U.S. gasoline demand expanded, stimulated by a growing economy and low prices. Total gasoline supplied to the U.S. market rose to an eight-year high of 9.7 million barrels a day last month, according to U.S. Department of Energy data.

Crude could fall to $10 a barrel as the Organization of Petroleum Exporting Countries engages in a “price war” with rival producers, testing who will cut output first, Gary Shilling, president of A. Gary Shilling Co., said in an interview on Bloomberg Television on Friday.

“OPEC is basically saying we’re not going to cut production, we’re going to see who can stand lower prices longest,” Shilling said. “Oil is headed for $10 to $20 a barrel.”

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Iran Targets 45 Oil Projects To Boost Output : Bloomberg

Crude Reserves

Iran has selected 45 oil and gas projects to show international companies at a conference in London in December when new oil contract models will be discussed ahead of exploration auctions to double the country’s crude output.

The projects, including oil and gas exploration, will be discussed along with details of a new oil contract model at the Dec. 14-16 conference, Mehdi Hosseini, chairman of Iran’s oil contracts restructuring committee, said in an interview in Tehran. Iran hopes to boost crude production to 5.7 million barrels a day, he said.

The Persian Gulf nation’s output was 2.85 million barrels a day in July, according to estimates compiled by Bloomberg. Oil producers such as BP Plc and Royal Dutch Shell Plc have expressed interest in developing Iran’s reserves, the world’s fourth-biggest, when sanctions are removed following last month’s nuclear agreement with world powers.

“We will define projects in the oil and gas sector as much as feasible and necessary since we believe this sector will bring wealth and economic development,” Hosseini said. “As far as this conference is concerned, we have defined around 45 projects which include exploratory blocs at varying development costs.”

Iran may give companies two to three months to decide whether to bid on the projects, he said. “The exact length will be decided by the time of the conference.” Shortly after that, Iran will call for bids, he said.

“We consulted with almost all medium and major oil companies over our contractual contents and projects. And the feedbacks have been positive,” he said.

New Contract

Iran will adopt “risk service contract” models which will offer investors payback in the form of cash or oil allocation, he said. They won’t be allowed to claim ownership of the country’s energy reserves, he said.

“They would resemble production sharing but with different characteristics,” he said. “The international oil company, or the investing company, would be accepting certain risks in view of which it would be entitled to a portion of the oil thus produced. Or the reward of that risk is a share/portion of the oil.”

Iran’s production costs are $8 to $10 a barrel so, “our projects will be attractive to investors,” Hosseini said. Falling oil prices are in Iran’s interest at this point because high prices encouraged uneconomical fields, he said.

“The drop in prices from $100 a barrel to around $50 a barrel now is only in the short run,” Hosseini said. “Looking at the international oil industry over the long-run, the demand will rise and so will the prices.”

Production Boost

Pending the end of sanctions, Iran wants to boost oil production to about 15 percent of the Organization of Petroleum Exporting Countries’ output, or more than 4 million barrels a day, he said. “As OPEC’s share increases so does our share and we will need to build capacity. As a preliminary goal in the short run we plan to produce 5 million barrels a day and then go from that to 5.7 million barrels a day.”

Iran’s oil reserves are estimated at 157.8 billion barrels by BP Plc. That’s enough to supply China for more than 40 years. Iran can boost oil production by 500,000 barrels a day within one week after international sanctions are lifted, Oil Minister Bijan Namdar Zanganeh said in an interview with state TV earlier this month. Sanctions against Iran’s oil industry should be lifted by late November, he said.

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Oil Bear Market Will Be Prolonged : Goldman Sachs

Oil dropped to the lowest in more than four months in New York on expectation a global glut that drove prices into a bear market will be prolonged.

Goldman Sachs Group Inc. estimates the global crude oversupply is running at 2 million barrels a day and storage may be filled by the fall, forcing the market to adjust, analysts including Jeffrey Currie said in a report dated Thursday. U.S. crude supplies remain about 100 million barrels above the five-year seasonal average, Energy Information Administration data on Wednesday showed.

Oil moved into a bear market in July on signs the global surplus will persist as the U.S. pumps near the fastest rate in three decades and the largest OPEC members produced record volumes. The Bloomberg Commodity Index, which fell almost 11 percent in July, has resumed its decline.

“Prices are under pressure because we’ve got more and more crude coming out of the ground,” Michael Corcelli, chief investment officer of hedge fund Alexander Alternative Capital LLC in Miami, said by phone. “Questions about storage capacity have already been brought up.”

WTI for September delivery fell 49 cents, or 1.1 percent, to settle at $44.66 a barrel on the New York Mercantile Exchange. It’s the lowest close since March 19. Prices are down 16 percent this year.

Supply, Demand

Brent for September settlement dropped 7 cents to end the session at $49.52 a barrel on the London-based ICE Futures Europe exchange. It touched $48.88, the lowest since Jan. 30. The European benchmark crude closed at a $4.86 premium to WTI.

“It’s the familiar theme of oversupply and shaky demand,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund, said by phone. “The negative reaction to yesterday’s inventory report set up for another drop today. We clearly have more than ample supply.”

About 170 million barrels of crude and fuel have been added to storage tanks and 50 million to floating storage globally since January, according to the Goldman report. Global oil oversupply has risen from 1.8 million barrels a day in the first half of 2015, Goldman said. The balance between supply and demand may only be restored by 2016, Goldman said.

Shoulder Months

“While we maintain our near-term WTI target of $45 a barrel, we want to emphasize that the risks remain substantially skewed to the downside, particularly as we enter the shoulder months this autumn,” the Goldman analysts said.

Crude supplies in the U.S. fell 4.4 million barrels to 455.3 million last week, the EIA said. Output expanded by 52,000 barrels a day to 9.47 million a day, the first gain in four weeks. Refinery utilization rose by 1 percentage point to 96.1 percent, the highest level since 2005.

Inventories of distillate fuel, a category that includes diesel and heating oil, rose 709,000 barrels to 144.8 million, the most since February 2012, the EIA report showed.

Ultra low sulfur diesel for September delivery rose 1.14 cents, or 0.7 percent, to settle at $1.5499 a gallon in New York. On Monday it closed at its lowest level since July 2009.

“Diesel isn’t up because of the fundamentals,” Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC, said by phone. “It’s getting support from the upcoming refinery-maintenance season, the harvest season and anticipation of thermal needs later this year.”

The Bloomberg Commodity Index of 22 raw materials dropped 0.3 percent. Eighteen of the components, which include gold, have declined at least 20 percent from recent closing highs, meeting the common definition of a bear market.