Alberta oilsands companies: Suncor buys Petro Canada

Why has Suncor bought Petro Canada?

Suncor has proposed to buy rival Petro Canada to form Alberta Oilsands largest oil company. The $15 billion US ($18 billion Canadian) stock purchase by Suncor of Petro Canada would be the second biggest purchase of an Alberta oilsands in the history of oilsands mergers and acquisitions in Alberta Canada. The purchase is said to help Suncor energy slash costs by reducing redundancy and become a more focused Alberta oilsands company. This is crucial in a period where we see oil prices at lows of $30 to $40 US per barrel and without any idea of how long US oil prices will remain at this level. Survival in the long term is what Suncor has been really good at and that is why they are Canada’s largest integrated Alberta oilsands company. This is an all-share deal and rates as the biggest Alberta oilsands takeover in history. The deal will help Suncor save over 1 billion in annual savings, a significant amount considering the limited access to financial resources in the current economic environment.

Is the Alberta Oil sands cheap?

The purchase of Petro Canada by Suncor begs the question of whether it is a good time to buy other Alberta oil sands companies. Are the Alberta oil sands cheap at this moment in time. Like Alberta real estate in Edmonton and Calgary which has seen a fall of over 30 percent in the last year, oil sands companies have likewise seen significant declines. The stock market, Toronto Stock exchange, Dow Jones, and S&P 500 are all significantly down over the last year and every stock that trades on the exchange has been brought down. It is more a lack of confidence in the financial markets as a result of the global financial crisis that is creating this current buying opportunity. But if Alberta oil sands is cheap right now, who can financially afford to buy it right now. There are very few big players in the Alberta oil sands industry who have also not been significantly hurt by the global financial crisis. Surviving the short term is a key priority for all Alberta oil sands companies despite any cheap buys. We may see other global companies from the Middle East or Asia (China in particular) make a serious offer for cheap Alberta oil sands companies. The Suncor offer for Petro Canada does seem to indicate that it is indeed a time for cheap Alberta oil sands purchases. Suncor, however, will also see significant savings in the purchase due to cost reductions which is an additional incentive for the current purchase.

Are there other Alberta oilsands companies going to be purchased soon?

What other Alberta oilsands companies are going to be snapped up in the next 12 months. It is only a matter of time before the buying spree continues. With the firming of US oil prices at $50 US per barrel, there seems to be more confidence in the medium term for Alberta oilsands companies. The stock market has recovered significantly in the beginning of April 2009 and this points to a growing consumer confidence. Alberta oilsands companies that may be bought first will be the bargain shoppers who are looking for companies with great pieces of land in the Athabasca region but short on financial capital. Companies such as BA Energy will be one of the targets of these Alberta oilsands investors who are eyeing the potential of owning prime Alberta oilsands real estate. The long term trends of the oil industry are still rosy as the demand for oil will continue to be much higher than the annual supply. This and the inability to find alternative cheap sources of energy is the reason that conventional oil will continue to rule the world.

Why Alberta oilsands productions have halted in 2009

Alberta oilsands projects have halted in 2009

The global financial crisis and the drop in oil prices to below $40 US per barrel has served a double whammy to the Alberta oil sands companies. Not only is the price of US $40 oil not as profitable for the Alberta oilsands companies but the global financial crisis is also reducing the available money for these companies to hire more labour and produce more oil. So falling commodity prices and weak credit markets make for a strong reason why Alberta oilsands projects have halted in 2009. The effects of the global financial crisis can also be seen in weaker demand for oil as more and more people are saving money in uncertain times. Less vacations means less Alberta oilsands development as well. The big Alberta oilsands companies such as Suncor, BA Energy and Husky energy will all see very weak 4th quarter 2008 earnings and this will dictate their strategy for 2009. We have already seen more than 10 billion of oilsands production halted and more announcements are expected to come.

Alberta oilsands companies cutting dividends

Alberta oilsands companies such as Suncor have cut their regular dividend payment to their shareholders. Suncor, one of the large Alberta oilsands companies, pays quarterly dividends to its shareholders. Investors have relied on the steady and safe return provided by companies such as Suncor who pay their dividends on a regular basis. This has been the main reason why people invest in oil sands trust which is mandated by their shareholder agreement to pay a specified amount of its income as dividends or automatic reinvestment shares. However as hard times have hit the global financial markets and the banks have stopped lending and cut credit, Alberta oilsands companies such as Suncor have had to take measures to conserve their cash. Conservative measures taken now rather than when the cash reserves run out is what Alberta oilsand companies are planning on as they try to survive the financial crisis. Will cutting dividends in the short term help these Alberta oilsands companies? Yes and No maybe the answer because if the financial crisis is short then we can expect the cash reserves to be improved soon. But if the financial crisis lasts for a few years then we can expect some bankruptcies to occur as cash strapped companies must close their doors.

Turn around time for Alberta oilsands projects

When will the turn around be for the Alberta oilsands projects. One year, two years or more is the question investors are demanding when they plan their investments in the Alberta oilsands. While the big Alberta oilsands projects have been postponed and not cancelled, the smaller Alberta oilsands projects have been cancelled. The big companies such as Suncor can wait out a slow period of growth by holding off for a year or more. In times of slow growth or negative growth we can expect some consolidation in the industry. The turn around time for the Alberta oilsands projects is expected to be 24 months. This coincides with the end of 2010 and when the global financial crisis is expected to improve and credit will once again be normal. We can expect Alberta oilsands projects to be announced again before the credit fully turns around. Maybe in early 2010 we will expect the activity in Alberta oilsands to be robust and more projects announced to be started.

Alberta royalty cuts: will it help the oil companies?

Why is Alberta cutting it’s royalties?

The Alberta Government just announced their policy change in March 2009 for the Alberta Oil sands royalty revenues. The Alberta government has decided to give Alberta oil sands companies a break in 2009 due to the financial crisis and drop their oilsands royalties significantly for any new activity that will be done in 2009. What this means is that any Alberta oilsands companies willing to invest in their existing oilsands projects and thus create new jobs in Alberta will be able to benefit from paying less royalty to the Alberta government for the oil that they produce. There is of course a cap on the amount of the cut and it only applies to a certain amount of oil produced as well as the time period. Time is of the essence in the Alberta royalties cuts and Oilsands companies need to move fast in order to benefit from this revenue boosting cut. The main reasons for the royalty reduction in Alberta is the lower revenue that is expected due to the postponement of many major oilsands projects and due to the climbing unemployment rate in the province. The Alberta government is losing revenue anyways and the reduction in royalty split may actually increase its share in a shrinking royalty pie in 2009 and 2010. The other reason is that oil prices that have hit historic highs of $140 US per barrel have fallen to barely profitable levels of $35 US per barrel. At these low US dollar per barrel oil prices the Alberta oilsands companies have postponed any further production to protect their future revenues.

Who will benefit from the Alberta royalties cuts?

So who will really benefit from the Alberta royalties cuts anyways? The Alberta oilsands companies consists of a few major players and lots of smaller companies. The fragmented nature of the oilsands companies is the reason why it is so hard to control the revenue that the Alberta government hopes to achieve. The global financial crisis has caused a reduction in the available capital to all Alberta oilsands companies both big and small. This is the real reason behind the many postponements of major oilsands projects and why we may continue to see very little oilsands activities despite the Alberta royalties cut. The stimulus for the cuts is giving the Alberta oilsands companies more future revenue but as you can see this misses the point of why they have reduced their development in the first place. This is especially true of the smaller oilsands companies in Alberta as they do not have the financial reserves that the bigger players such as Suncor has. In the current global financial crisis we can expect the big players such as Suncor, Husky Energy, or BA Energy benefit from the Royalties cuts the most. The smaller players will have to sit on the sidelines waiting for the banks to start lending again before taking part in any revenue gains as a result of Alberta royalties cuts.

Alberta oil company activity in 2009 and beyond

What will happen in 2009 for Alberta oilsands companies and the industry? This is a question mark for everyone including this writer of course but we can definitely put out our opinions. One of the main factors for any growth in the Alberta oilsands development in 2009 is the ability of the global financial crisis to stabilize. This is by far the most important factor in determining whether we will see an increase in Alberta oilsands companies investments. With an increase in lending activity we should start to see the large Alberta oilsands companies start to perhaps consolidate by buying smaller oilsands firms. This consolidation will happen at good prices not seen for some time as the smaller oilsands companies values have decreased dramatically with the fall in US oil prices to $35 per barrel. The second important factor is the US price per barrel of oil and what price this will stabilize at. It is important for US oil prices to maintain a level of $50 or more. This level of US price of $50 will allow for the profitable development of new projects without over production causing abnormally high costs. The US price per barrel of oil should not be more than $100 or else this will have an adverse affect on the industry.

Alberta slashes Alberta Oil Sands Royalty

Alberta Government reveals Royalty Slashing

The worsening financial crisis has hurt many industries including the Alberta Oil Sands and their related companies. The recent postponing of many of the billion dollar projects by companies including Suncor, Husky Energy, BA Energy, and Petro Canada to name a few are forcing Alberta politicians to review their Royalty policy. A recent shift in their Alberta Oil Sands Royalty from 15% - 20% down to 5% shows how much the Alberta Government is willing to give in order to save jobs in Alberta. Read more about this online at Financial Post http://www.financialpost.com/story.html?id=1349060. The Alberta Government is facing a dire deficit of more than 1 billion dollars, its first deficit for more than 10 years. Despite the recent increase in the percentage of Royalty payments in 2008 when oil price per barrel was well over $100, the Alberta Government is in a worst position if no new jobs are created. With fewer oil wells as a result of a postponement in projects, royalty slashing is the only alternative in creating the right environment for Alberta Oilsands companies to continue to invest in Alberta rather than in other areas. The new royalty slashing plan in Alberta applies to 5% of the first 500,000 barrels of oil in the next year or 500 million cubic feet of natural gas.

Alberta Oilsands Royalty rates and the Alberta Oilsands Companies

The royalty rates charged by the Alberta Government allow it to share in the profits of Alberta oil sands companies. When the economy is doing well, Alberta oil sands companies will continue to invest despite a high royalty payment to the Alberta Government. As long as profits remain high, and they were at record levels of a few billion dollars per quarter, everyone will remain in business. However, the global financial crisis has created a bad environment for the Alberta oil sands companies. In a global financial crisis, it is impossible to borrow money from any bank. The major banks around the world provide the credit facilities required to fund Alberta oil sands companies operations and lines of credit facilities to operate efficiently. Without the support of the global financial system, the Alberta Oilsands companies run a high risk of running out of needed capital and going bankrupt from a lack of financial resources. While the big companies such as Suncor have large financial reserves, it is still unlikely to invest in times that are this uncertain. The royalty rates are a financial incentive to provide Alberta Oil Sands companies to continue to take risk despite the possibility of lower financial support.

Will the Royalty reduction work?

The beginning of 2009 has already seen a decrease of 27% in drilling activity from the major Alberta oil sands companies. This drastic reduction in activity means a drastic reduction in employment and an increase in unemployment for the province of Alberta. A royalty reduction will provide the financial incentive for Alberta oil sands companies to take the risk now to invest rather than wait a year and have to pay a larger percentage of their profits to Alberta oilsands royalty payments. But arguments of whether this will work include the financial stability of the Alberta oil sands companies have not improved. Without providing the financial stability taken away as a result of a weakening in the global major banks, the small Alberta oil and gas companies are still not able to make any new investments despite having a lower royalty. The main benefits of this royalty reduction would actually to go larger producers who have the financial reserves to produce even more and will be able to take advantage of a saving in royalty payments.

Alberta Oil Sands Companies: Suncor Energy

Suncor develops Alberta Oilsands in the Athabasca Region

Suncor Energy Inc. is an integrated energy company with large holdings in the Alberta Athabasca region. The company was founded in 1967 and currently employs more than 6,500 employees. Being an integrated energy company, Suncor has large holdings in the Alberta Oilsands Athabasca region, explores, produces and develops natural gas, has downstream operations in Ontario and Colorado that market the company’s refined products. In addition to it’s oil and natural gas, Suncor also has investments in renewable energy including wind power farms and Suncor’s ethanol facility, a known biofuel, in Ontario. Though its main focus is on the development of the Alberta Oilsands and is one of the first Alberta Oilsands companies to locate in the Athabasca region.

Suncor and Alberta Oilsands production

Suncor Energy Inc. main focus is Alberta Oilsands production. The Alberta Oilsands is an oil rich area that has more commercially viable oil than anywhere in the world and the reserves are only getting larger with improvements in technology. Suncor has been developing its Alberta Oilsands since 1967 and continues to be one of the biggest Alberta Oil sands companies in the area. By recovering oil, known as bitumen, from the oil sands and refining it to produce products that include feedstock and diesel fuel, Suncor provides an economically viable product that is in high demand around the world. The two methods that Suncor uses to recover oil from the Alberta oil sands is surface mining and in-situ (similar to conventional oilwell production). Through advances in Alberta oilsands technology and computers and engineering techniques, the current proven reserves in Canada’s Alberta Athabasca region is only second to Saudi Arabia. However, our potential reserves given an improvement in the technology in the future are far in excess of anywhere else in the world.

Suncor Energy Inc.on the NYSE and TSX: SU

Trading on the Toronto Stock Exchange, TSX, and the New York Stock Exchange, NYSE, under the symbol SU, Suncor is a global energy company with access to private capital. Suncor has a dividend reinvestment option that allows current shareholders to easily and cost effectively reinvest their regular quarterly dividends into more shares of Suncor. The stock price of Suncor hit an all time high in 2008 of $73. With the current fall in oil prices, Suncor has fallen back to its 2004 and 2005 price range of $20 to $30 per share. The value of Suncor is highly dependent on the price of oil and the world demand for oil products. While the oil prices remain in the range of $30 - $40, the price of Suncor and other Alberta oil sands companies including BA Energy, Husky Energy, and Petro Canada will all be affected by the weakness in the commodity price. When the price of oil peaked at $140 per barrel we saw the high reach $73 per share so there is a large range of share prices in the current market. With global demand expected to continue to be robust and after the financial crisis is passed, we expect to see another jump in the price per barrel of oil. While alternative energy such as windpower, biofuel, and solar panel are still in its infancy, we can also continue to expect the reliable consumption of oil to continue.

Alberta oil sands project cancellations

Over 200 billion to be lost in Alberta oil sands investment

As more and more projects are halted on a daily basis in the Alberta oil sands, estimates of $97 to $241 billion will be loss in investment. (read article: http://www.financialpost.com/story.html?id=1258599) A loss of this magnitude will affect the investment environment in Alberta and the Canadian economy. With a big loss will also come a reduction in the amount of labour employed by the Alberta oil sands companies and loss revenue to the province of Alberta. The figure of 200 billion may seem arbitrary but this would represent 1/3 of the proposed investments in the Alberta Oil sands over the next decade. Imagine the loss in revenue to the Alberta and Canadian government and all the well paid Alberta oil sands jobs that will never be started. Alberta oil sands investments may seem to be risky in light of this figure and the potential of even bigger numbers to come. Depending on the severity of the global financial crisis and the ability of Alberta oil sands companies to survive the Alberta recession, we may see Alberta oil sands investments become the jewel once again in Canada.

Alberta oil sands project cancellations

BA Energy became the first Alberta oil sands company to file for bankruptcy in 2009. Imperial Oil and Exxon and Husky Oil are all slowing down existing projects or have project cancellations and postponements. If a project cancellation occurs there is an indeterminate amount of time before it may be started. The effect on labour is huge as many existing workers are laid off and no new labour is required or forecast. This will inevitably lead to an Alberta Recession as the Alberta oil sands projects account for a significant share of the labour demand. Alberta oil sands project cancellations are not a bad thing on the other hand. If you think about it, the Alberta oil sands have been running at near full capacity for the last five years. The impact can be felt by the labour force through increased injuries and WCB claims and increased job dissatisfaction as a result of over work and too much stress. The other big impact is the environment and Alberta oil sands negative image as dirty oil or tainted oil. With a slow down in production the Alberta oil sands companies including the Alberta government now have the resources to invest in improving the processes that are used in developing the tarsands. Perhaps we will not hear the word dirty oil or tainted oil in the following decade.

US Oil Prices and Alberta oil sands

US oil prices have a big impact on the Alberta oil sands. It seems that no matter how high the price of US oil we all need to drive. When the price of US oil reached $4 a gallon there was a revolt in many parts of the World including the US. But people still drove their SUVs and trucks still delivered their goods. The oil companies made record quarterly profits silently in the background of all the outrage. With low US oil prices we see a shift in production of the Alberta oil sands and a reduction in production and new projects. The Alberta oil sands companies must make a profit as like any other business and when the profits are low or negative then it becomes survival mode. The large Alberta oil sands companies have been around for up and down markets and realize that the prices will fluctuate 2 to 3 times during the expected life of their projects. These Alberta oil sands companies keep large cash reserves and tightly guard this as their strategic weapon in times such as these. It is sometimes a blessing for them to be in a global financial crisis as they get to pick up distressed junior oil and gas companies without the financial resources at bargain prices.

Alberta Oil Sands companies – BA Energy files for credit protection

Alberta oil sands and BA Energy

A major player in the Alberta Oil Sands projects, BA Energy Inc., filed for credit protection in early 2009. BA Energy Inc. was developing a $4 Billion Dollars Alberta Oil Sands Upgrader project near Edmonton in what is known as the Heartland Upgrader. These projects require significant capital in order to run its daily operations and would require funding from its credit facilities. Credit facilities for BA Energy Inc. are secured via a $507 Million US$ loan from Credit Suisse and due to the worsening financial crisis, this credit line is not guaranteed to be around for 2009. What this means for BA Energy Inc and its Alberta Oil Sands Upgrader projects is that there could be a callback of their loans in 2009 which would lead to credit protection. This has lead BA Energy Inc. to be the first Alberta Oil Sands developer to file for credit protection in 2009.

Financial crisis and BA Energy

How has the financial crisis affected BA Energy Inc. and other Alberta Oil Sands companies and what further developments will come in 2009? The financial crisis is a worldwide event that resulted from defaults in asset backed securities and the housing crisis in the US. Because there has been a dramatic default and loss as a result of the Financial Crisis and defaults of loans, the worldwide credit markets have literally been frozen. BA Energy Inc. and other Alberta Oil Sands Companies depend on vast amounts of credit to fund their daily operations. The funds that BA Energy Inc. require are provided by global credit facilities offered through banks such as Credit Suisse. Because of the mounting defaults in the US and the exposure that these global credit facilities companies including Credit Suisse has, the need to recall existing loans has been created. The global credit companies will recall loans with the highest risk first. Alberta Oil Sands projects including BA Energy Inc.’s Heartland Upgrader project are now considered high risk because of the drop in oil prices to sub $50. Not only have BA Energy Inc. filed for credit protection but it has also been one of many Alberta Oil Sands companies to postpone projects indefinitely. This will be a continuing theme while we are in the middle of the financial crisis and oil prices remain low.

Are more Alberta Oil Sands companies needing credit protection

Which Alberta Oil Sands companies will survive the financial crisis? Or more to the point which Alberta oil sands companies will have a strong enough balance sheet to weather out the financial crisis storm for 2009. Afterall, it is a result of the lower oil prices in Alberta that have created the lower profit expectations of all the companies. With Alberta oil sands companies projects being viable at a stable oil price of over $50, the current level is going to create significant problems for some of the smaller firms to survive. Large Alberta Oil Sands companies such as Suncor have significant cash reserves set aside to ride out rough patches including a short term lower oil price. However smaller companies such as BA Energy Inc. will need to file for credit protection. The forecast in 2009 will probably see a consolidation of the smaller Alberta Oil Sands companies with the larger ones and thus avoiding credit protection. However for existing shareholders of these smaller companies the outlook is poor that they will receive much value from their existing shares.