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 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 Bust – Is the end really over?

Alberta recession and the Alberta Oil Sands

What is happening in Alberta these days? With so much happening with the world including the global financial crisis, global credit crunch, and US $33 a barrel oil, it’s no doubt that Alberta would suffer along with the rest of the world. The Alberta Oil Sands was the best thing to happen to Canada in the last ten years. It gave Canada a national treasure that was poised to bring it to the forefront of being a global energy leader. With the high US oil prices at even $50 US a barrel, the Alberta Oil Sands could not have been a safer investment. The Alberta oilsands had many players and investors over the last decade. As with many of the Canadian Industries, Alberta oil and gas industry is also filled with a majority of junior oil and gas companies. The Alberta recession, or what may be just a few negative quarters of growth, may bring a halt to the boom of the last decade. Could we see an Alberta Oil Sands Bust in the near future??? With a global recession, anything is possible and speculation is everywhere. Many of the large Alberta Oilsands companies are finding this an ideal time to go bargain hunting and picking the jewels to add to their portfolio of Alberta oil sands companies and assets.

Global Credit Crunch and Junior Alberta Oil and Gas companies

A global credit crunch means that major financial institutions will not be as willing or able to lend money to fund company projects. Whether the project is to start a new franchise or fund the daily operations of a Junior Alberta oil and gas company, the decisions that are being made these days are quite dire. No major or minor financial institution has been unharmed by the global credit crunch due to the interrelated nature of the business. Junior Alberta Oil and Gas companies are tied to the global credit crunch as their financing is tied to one of the major financial institutions. Another source of their usual financing, the equity markets or stock markets have also been unavailable during this time of global financial crisis. It is for such a reason that the major Alberta Oil sands companies are shopping for the bargains that are starting to pile up as one after another Junior company starts to feel the crunch. Instead of filing for bankruptcy, the next alternative is to sell at a loss and lose all your equity. While some of the Alberta Junior oil and gas companies may make it with some federal and provincial government funding from Canada, this will not help many of them soon enough.

US $33 a barrel Oil and Alberta Oil Sands

With US $33 a barrel oil prices we are seeing a halt in any new Alberta Oil Sands projects. Alberta oilsands projects that are just started or announced to be started are now currently on hold until further notice. Of course no one knows when oil will go up so the timeframe can stretch longer than anyone is comfortable with. Current US $33 a barrel oil seems like an enigma in todays society. With the bustling growth in population in India and China alone, the price of US $33 a barrel oil would seem silly as the current supply of oil is insufficient to meet global demand. The current $33 US a barrel oil price is more of overreaction to the global financial crisis and once confidence builds up we should see a spike in oil prices again. With a spike in oil prices even to a stable $50 US a barrel oil we will see the commencement of a lot of projects overnight.