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Tuesday, March 24, 2009
Petro-Canada and Suncor Energy Inc. announced yesterday that they have agreed to merge the two companies. Once the merger is complete, the two companies will operate as one entity and trade under the Suncor name, while maintaining the strong brand presence and customer loyalty of Petro-Canada in refined products.
Petro-Canada is one of Canada’s largest oil and gas companies, operating in both the upstream and the downstream sectors of the industry in Canada and internationally, holding significant producing assets in Libya. Suncor is an integrated energy company active in the oil sands business. The company extracts and upgrades oil sands and markets refinery feedstock and diesel fuel, and produces natural gas throughout western Canada. Suncor operates a refining and marketing business in Ontario with retail distribution under the Sunoco brand. US downstream assets include pipeline and refining operations in Colorado and Wyoming and retail sales in the Denver area under the Phillips 66(R) brand.
"This merger creates a made-in-Canada energy leader with the assets, cost structure and financial strength to compete globally," said Rick George, who is president and chief executive officer of Suncor and who will assume the same role with the merged entity. "The combined portfolio boasts the largest oil sands resource position, a strong Canadian downstream brand, solid conventional exploration and production assets, and low-cost production from Canada’s east coast and internationally."
Under the terms of the Arrangement Agreement entered into between Suncor and Petro-Canada, the proposed merger will be effected by way of a Plan of Arrangement completed under the Canada Business Corporations Act. It will feature a common share exchange through which Petro-Canada common shareholders will effectively receive 1.28 common shares of the merged company for each common share of Petro-Canada they own and each Suncor common shareholder will receive one common share of the merged company for each common share of Suncor they own. The exchange ratio represents an approximate 25% premium for the Petro-Canada shares to the 30-day weighted-average trading price of such shares. On completion of the proposed transaction, Suncor’s existing shareholders will own approximately 60% and Petro-Canada shareholders will own approximately 40% of the merged company.
Some of the characteristics of the merged company will have include:
– a resource base with approximately 7.5 billion barrels of oil equivalent (boe) of proved (developed and undeveloped) and probable reserves, on top of an estimated contingent resource base of approximately 19 billion boe
– strong cash flow from current crude oil and natural gas production of approximately 680,000 boe per day.
– a strong balance sheet, with a pro forma debt to capitalization of 29.6% and a debt-to-cash flow ratio of 1.2.
– a high quality asset portfolio including:
— a suite of oil sands growth options for both mined and in-situ resource recovery, as well as value-added upgrading.
— a position in every major oil development project on
— low-cost international crude oil and natural gas production from the North Sea, North Africa and
— refining capacity of 433,000 bpd and a strong Canadian retail brand.
— a solid platform for further development of renewable energy projects.
"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," said Ron Brenneman, who is currently president and chief executive officer of Petro-Canada and who will assume the role of Executive Vice Chairman in the merged company. "The increased scale provides more stability in volatile markets, plus the financial and organizational capability to successfully take on large-scale projects in the future."
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