Suncor shareholders add support to Petrocan deal
Globe and Mail Update
Calgary Shareholders of Suncor Energy Inc. added another strong approval to the merger forming Canada's largest energy company, voting 98 per cent in favour of combining with Petro-Canada. “The new Suncor will look very much like the Suncor you know today,” Suncor chief executive officer Rick George told shareholders in Calgary. “The difference is the new Suncor will be bigger, stronger and able to compete with global supermajors on many measures and certainly here in our own backyard.”
The Suncor vote on Thursday afternoon came after more than 96 per cent of Petro-Canada shareholders voted earlier in the day for a joining of forces that will form the new Suncor Energy Inc., the second-largest company in Canada.
“I'm confident that with this merger we create Canada's premiere integrated energy company, a company that will be able to compete globally and deliver excellent value to you, our shareholders,” Petrocan CEO Ron Brenneman told a special shareholders meeting in Calgary Thursday morning.
He marked what is effectively the end of Petrocan, a 34-year-old company he has led for nine and a half years, on the day he turned 63.
“I think of it more as a new beginning,” he told reporters. “I really do think that this is a logical next step in the evolution of Petro-Canada.”
The vote is a major step toward creating the new company, worth $58.5-billion at today's market valuations, which hopes to clear regulatory and competition hurdles by the third quarter.
A separate Petrocan vote to approve an executive options package barely passed, with only 52 per cent of shareholders giving it the thumbs-up.
Only one major shareholder, Montreal's Letko Brosseau & Associates publicly criticized the deal during the morning meeting, saying it sells Petrocan shareholders short and gives too much to holders of Suncor stock, who will own about 60 per cent of the new company.
The new Suncor will have the largest position in Alberta's oil sands and a suite of assets that spans the globe, from offshore Canada's East Coast to the North Sea, Libya and Syria, along with 19 billion barrels of oil resource for future development. It will also be a Canadian leader in urban retail gasoline sales and wholesale diesel supply.
“Not only will the new company be strong in scale, but the new portfolio is very well balanced across different businesses,” Mr. Brenneman said.
The combined Suncor will see 38 per cent of its revenues from oil sands, 11 per cent from North American conventional production, 13 per cent from the East Coast and 14 per cent from refining and marketing.
The merger is expected to achieve $1-billion in annual capital savings, and another $300-million in operating savings, although Mr. Brenneman said decisions on the extent of staff cutting have not yet been made.
He also declined to comment on the order with which the new company intends to pursue a long slate of major projects. Mr. George has strongly hinted that two of its stalled projects – its Voyageur bitumen upgrader and expansion of its Firebag in situ project – could resume as soon as this month.
Mr. Brenneman, however, displayed a slide that showed Petrocan's stalled Fort Hills oil sands mine as second in line to receive funding – behind Firebag – although he said the particular order has not yet been decided. However, costs for the project have now fallen enough that it is economic with oil at $60 (U.S.), a figure that could still decline once the company factors in savings it can achieve by making use of nearby Suncor facilities.
However, he did highlight one of the key reasons for the merger. Suncor, with a portfolio heavily tilted toward the capital-intensive oil sands, will now be able to rely on Petrocan, which has 80 per cent of its production capable of turning a profit at oil prices below $40 a barrel. Some of its assets are dramatically powerful cash makers: its Canadian East Coast assets, for example, are cash-flow positive at $5.
Petrocan had also long been criticized for a share performance that lagged the market. Since the merger was announced, the company has outperformed both its U.S. and Canadian peers, Mr. Brenneman said.