AFP: Canada’s sands the next big thing in black gold

June 20, 2007
By Guillaume Lavallee

Fort McMurray – With world oil prices hovering at near nine-month highs and global energy firms flush with cash, analysts are predicting that control of Canada’s booming oil sands sector could soon fall into foreign hands.

Foreign bids worth tens of billion dollars are expected in the coming years as global oil companies look for new opportunities, say analysts.

“The oil sands are ripe for a (wave of takeovers),” analyst Mark Friesen, of FirstEnergy Capital in Calgary, told AFP. “There are world-class assets (in Alberta province) that have already attracted the attention of world players. So, I think there are possibilities for more (acquisitions).” And “those who come may want to do more,” he said.

Jeff Rubin, chief economist of CIBC World Markets, predicted “significant acquisitions of existing Canadian producers.”

Canada’s oil sands, at an estimated 173 billion barrels, rank second behind Saudi Arabia in petroleum resources. But due to high extraction costs, the deposits were long neglected except by local companies.

While conventional crude oil is pumped from the ground, oil sands must be mined and bitumen separated from the sand and water, then upgraded and refined.

Since 2000, skyrocketing crude oil prices (now at about $70 a barrel) and improved extraction methods have made it more economical to exploit the sands. And Canada has lured several international oil companies that have invested billions of dollars in projects to mine the sands.

French behemoth Total bought Deer Creek for $1.3 billion (R9.2 billion) in September 2005.

Shell Canada followed last year with the purchase of Blackrock for $2.6 billion, before its parent Royal Dutch Shell paid $8.2 billion in April for 22percent of its outstanding shares not already under its control.

Also in April, Norway’s Statoil bid $2 billion for North American Oil Sands Corporation which has stakes in several companies sitting on two billion barrels of Alberta oil.

Canada produces 2.5 million barrels of oil per day, including one million barrels from the oil sands, making it one of the world’s top energy exporters.

Analysts said Canadian companies such as UTS Energy, Canadian Oil Sands, Opti Canada and Western Oil Sands with properties in northern Alberta are likely takeover targets.

“When you look at the high cost and technical expertise needed to develop the oil sands, clearly the largest petroleum companies are the most-suited for the job,” Michael Borrell, president of Total Canada, told AFP.

“The return on investment in these operations is long term,” he said. “Companies that rely only on oil sands revenues will find it difficult to finance such massive projects.” Borrell said Total expects to spend $10-$15 billion to develop oil sands projects over the next decade and squeeze up to 300 000 barrels of oil per day from Alberta.

According to reports, the French company is also eyeing a takeover of Western Oil Sands.

After the recent foreign takeovers and hostile bids for Canadian mining companies Inco, Falconbridge and Alcan drew the ire of nationalists, Mark Friesen commented that “from a regulatory point of view, from the government point of view” Canadian officials are taking a closer look at the implications of foreign ownership of the oil sands.

“They may be thinking about the longer term,” he said. But “I am not suggesting that they will stop… foreign takeovers.” – AFP
 
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