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Suncor to buy Canadian rival for C$19.6bn

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By Bernard Simon in Toronto and Ed Crooks in London

Published: March 24 2009 02:00 | Last updated: March 24 2009 02:00

Suncor Energy of Canada is to buy rival Petro-Canada for C$19.6bn (£11bn) in an agreed all-share deal that will create North America’s fifth biggest oil and gas producer and accelerate consolidation in the Alberta oil sands.

The largest deal in the oil and gas industry since 2006 comes amid troubled times for operators in bitumen-like oil sands, which cover an area the size of Florida and contain the world’s second-biggest oil reserves after Saudi Arabia.

Industry estimates suggest existing projects need an oil price of about $40 a barrel to cover their costs, but a new project with substantial investment could need close to $100 a barrel to be commercially viable.

Besides the difficulty of extracting the oil, labour and equipment costs soared during the energy boom. Numerous projects have been delayed or shelved since the collapse in the oil price.

Suncor’s shareholders will own about 60 per cent of the merged company, with Petro-Canada’s holding 40 per cent. Suncor’s offer represents a premium of about 25 per cent on PetroCanada’s recent share price.

Rick George, Suncor’s chief executive, said yesterday that the combined company “will be very focused in Canada, very focused on oil sands”. Much of its oil sands production will be channelled through its five refineries.

Mr George added that the enlarged Suncor would be in a strong position to match bigger rivals, such as Exxon and Royal Dutch Shell, in continuing to invest during the downturn in commodity prices.

Suncor is the second-biggest oil sands producer. Petro-Canada is more diversified with stakes in several oil sands projects, more than 1,300 retail outlets, and operations off the east coast of Canada, in the North Sea, Libya, Syria and the Caribbean.

Suncor and Petro-Canada said that their deal would cut C$300m a year in operating outlays, and save C$1bn in capital budgets.

CIBC World Markets and Morgan Stanley acted as financial advisers to Suncor. Petro-Canada retained RBC Capital Markets and Deutsche Bank.

Suncor shares fell 0.5 per cent to close at C$30.74 yesterday. Shares in Petro-Canada climbed 20.4 per cent to C$35.70.

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