Suncor Bid for Canadian Oil Sands Pits Promise Against Results

(Bloomberg) -- As Canadian Oil Sands Ltd. tries to fend off Suncor Energy Inc.’s C$4.5 billion ($3.2 billion) bid, the latest upset at its only business couldn’t have come at a worse time.

After missing production targets each year since 2010, Chief Executive Officer Ryan Kubik is trying to convince investors that this time he’ll deliver on what’s been promised. A Dec. 8 production cut at the Syncrude oil-sands project only adds to the performance concerns.

“Performance is a big factor” for shareholders considering whether to sell to Suncor, said Michael Dunn, an analyst at FirstEnergy Capital Corp in Calgary. “This was supposed to be the year when things got better. Instead, they’ve got worse.”

The production cut at Syncrude highlights the challenges Kubik faces as he defends Canadian Oil Sands and its only asset against Suncor, whose market value is more than 12 times larger and which operates additional mines in Alberta, four refineries, almost 1,500 Petro-Canada service stations and oil wells in the North Sea. Extracting bitumen and converting it into crude is increasingly dominated by large, diversified companies like Suncor, Canadian Natural Resources Ltd. and Imperial Oil Ltd.

Kubik is seeking a second chance from shareholders, who have been stung by a 75 percent drop in the share price since April 2011. Kubik says greater rewards await if the company remains independent. Suncor CEO Steve Williams says his offer for Canadian Oil Sands, the largest owner of the Syncrude oil- sands mine, would allow investors to move beyond the past poor performance.

“If you want to grow in the oil sands, you need a lot of capital and a strong balance sheet to better weather commodity prices,” said Amir Arif, an analyst at Cormark Securities Inc in Calgary.

Canadian Oil Sands’s patchy record in meeting earnings targets also appears to weaken Kubik’s hand. His company, with fewer than 50 employees, has missed adjusted-earnings-per-share estimates in seven of the past eight quarters. That compares with four out of eight misses for Suncor.


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