Suncor not ruling out sweetening offer for Canadian Oil Sands

In an interview with The Wall Street Journal (subs. required) Monday, Williams said that while he thinks the offer is fair, Suncor has not closed the door on additional incentives to win over more investors.

His comments contradict the message Suncor sent COS shareholders last month, when it said that if it did not receive substantial support for its offer on Jan. 8, the company would “pursue other opportunities.”

COS adopted a poison pill two days after Suncor made its unsolicited all-stock offer in early October, which valued the company at $4.3 billion. Such bid has been repeatedly branded as “substantially undervalued” by COS, which asked shareholders Monday to allow it to remain an independent company.

Meanwhile, a prominent Canadian businessman has taken out full-page newspaper ads and sent fellow Canadian Oil Sands shareholders a direct letter to declare his opposition to Suncor’s proposed hostile takeover.

In the document, Seymour Schulich stresses that Suncor is “offering an unacceptable price for an irreplaceable asset” and calls shareholders to join him in rejecting the bid.

The asset Schulich is referring to is Syncrude, Canada’s largest synthetic oil project, which is majority owned by COS (37%) and in which Suncor currently has a 12% stake. The oil giant’s attempt to buy COS would increase its share to 49%, making it Syncrude’s top shareholder.

Seymour Schulich’s letter to shareholders:

To My Fellow Canadian Oil Sands Shareholders:

My name is Seymour Schulich.  I am a Chartered Financial Analyst (CFA) specializing in Oil and Gas and was a senior partner for 22 years at one of Canada’s largest investment counselling firms.  I also worked for Shell Oil early in my career and have been a merchant banker to the Oil and Gas Industry for over 46 years.

I’ve made a good living making smart investment decisions and thinking long term.   

I also know when someone is trying to pull a fast one on me and Suncor is trying to pull a fast one on all of us.  

Quite simply, they’re offering an unacceptable price for an irreplaceable asset.

Let me tell you why.

Suncor is hoping we are thinking short term, ignoring the benefits we are about to see from recent capital investments at Syncrude, and overlooking the inescapable reality that oil prices will go up.

I am energized by the fact Syncrude has reduced costs in a lower oil price environment, completed major projects on time and under budget, and is generating enough cash flow under a USD $40 per barrel WTI price assumption to fully fund all costs, including capital expenditures and our dividend. 

I like that Canadian Oil Sands is closely levered to the price of oil so our investment here will slingshot when –and they will—oil prices rebound and in a way Suncor’s broader portfolio prevents. Sure there have been challenges at Syncrude, but there have also been solutions.  Suncor knows this because they sit at the table and participate in making the decisions.  If they really had a silver bullet that would achieve maximum production efficiency all day, every day, 365 days a year, I assume they would have shared it by now.  

Suncor is hoping you don’t realize they are willing to pay more.  But the facts speak for themselves:  In addition to our valuable upgrader and 1.6 billion barrels of reserves, Lease 29 presents an especially attractive opportunity for Suncor. Not only is it closely located to their existing operations but Suncor’s North Steepbank mine is nearing the end of its life.  That means they need to build a new mine much further away at a much greater cost, or acquire Lease 29 and extend the operations of their existing mining equipment and defer billions of dollars in capital spending.  

When you add in the fact that with our shares Suncor would have a 49% de-facto controlling position in Syncrude, there is more than enough evidence that Suncor should –and I believe is willing to—pay more.

The fact is Suncor needs Canadian Oil Sands more than we need them.  I have been involved with Canadian Oil Sands for over 13 years. I know what this business can do for its shareholders when oil prices recover. I am confident in my investment in a reliable, viable, standalone Canadian Oil Sands.  

I’m not selling at this price and you shouldn’t either.

Your fellow shareholder,

[signed]
Seymour Schulich, OC