Monday, December 10, 2012

Total rec'oil'!

The deal promises tons to Suncor

You lose some, you gain some. Quite true! Just when the price of oil per barrel eased from a high of $147 (in August 2008) to the current $47.92, thereby threatening bottomlines for most oil companies across the world, there's one name which begs exception to the rule! Alright, though that sounds unreal, yet the situation is not too far from being true, given the condition that the $19.18 billion merger between Suncor Energy Inc. & Petro-Canada comes through. As per experts, the new entity, valued at a mind-blowing $43.4 billion would then have comfortable oil reserves for the next 100 years in its kitty. Now that's a deal!

So what about synergies? Ron Brenneman, CEO, Petro-Canada explains, “The merger will be good for shareholders of both companies, with reduced capital requirements, operating efficiencies and complementary integration opportunities between upstream and downstream assets.” Most definitely, this deal will not only boost Suncor's (the merged entity) balance sheet (with a pro-forma debt to capitalisation of 29.6% and a debt-to-cash flow ratio of 1.2), but will also make it North America's 5th-largest oil company. The fact that there is very little overlap between the refineries of the two companies will also help their case. While, Petro-Canada has refineries in Edmonton and Montreal, Suncor has it in Sarnia, Ont., and Denver. But there are challenges too. Firstly, with this merger, Suncor will venture into the international space, something unknown to it so far. Secondly, the new company shall be governed by the Petro-Canada Public Participation Act that restricts the ownership of more than 20% of shares by a party. This would greatly reduce voting rights for active shareholders.


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri

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