Suncor Energy and Petro-Canada (both featured in the Oil Sands article in IM March 2009), oil sands focused mining companies based in Alberta, Canada, have agreed to merge. Upon completion of the transaction, the combined entity will operate corporately and trade under the Suncor name while maintaining the brand presence of Petro-Canada in refined products. “This merger creates a made-in-Canada energy leader with the assets, cost structure and financial strength to compete globally,” said Rick George, President and Chief Executive Officer of Suncor, who will assume the same role with the merged entity. “The combined portfolio boasts the largest oil sands resource position, a strong Canadian downstream brand, solid conventional exploration and production assets, and low-cost production from Canada’s east coast and internationally.”

Under the terms of the arrangement agreement entered into between Suncor and Petro-Canada, the proposed merger will be effected by way of a plan of arrangement completed under the Canada Business Corporations Act. It will feature a common share exchange through which Petro-Canada common shareholders will effectively receive 1.28 common shares of the merged company for each common share of Petro-Canada they own and each Suncor common shareholder will receive one common share of the merged company for each common share of Suncor they own. On completion of the proposed transaction, Suncor’s existing shareholders will own around 60% and Petro-Canada shareholders will own about 40% of the merged company.

The merged company will have the following key characteristics:

• A resource base with some 7,500 Mbbl of oil equivalent of proved (developed and undeveloped) and probable reserves, on top of an estimated contingent resource base of around 19,000 Mbbl of oil equivalent
• Strong cash flow from current crude oil and natural gas production of about 680,000 bbl/d (oil equivalent)
• A strong balance sheet, with a pro forma debt to capitalisation of 29.6% and a debt-to-cash flow ratio of 1.2
• An experienced management team, complementary cultures and leading environmental and social responsibility practices
• A high quality asset portfolio including:
• A suite of oil sands growth options for both mined and in-situ resource recovery, as well as value-added upgrading
• A position in every major oil development project on Canada’s East Coast
• Low-cost international crude oil and natural gas production from the North Sea, North Africa and Latin America
• Refining capacity of 433,000 bbl/d and a strong Canadian retail brand
• A solid platform for further development of renewable energy projects.

“The merger will be good for shareholders of both companies with reduced capital requirements, operating efficiencies and complementary integration opportunities between upstream and downstream assets,” said Ron Brenneman, currently President and Chief Executive Officer of Petro-Canada, who will assume the role of Executive Vice Chairman in the merged company. “The increased scale provides more stability in volatile markets, plus the financial and organisational capability to successfully take on large-scale projects in the future.”

“More than just the strategic fit, I also believe there’s a lot of common ground in our corporate vision” said George. “Both Petro-Canada and Suncor have a history of innovation and pushing the frontiers of oil and gas development in Canada. And just as importantly, both companies have taken a leadership position in striving to develop not just resources, but also communities, the Canadian economy and our quality of life. We’ve both put a strong focus on people and our shared environment and together, I expect that focus to be even stronger as we move forward.”

The merging companies estimate achieving annual operating expenditure reductions of C$300 million. These savings are expected to come from efficiencies in overlapping operations, streamlining business practices, and improved logistics. The companies also expect to achieve annual capital efficiencies of some C$1 billion through elimination of redundant spending and targeting capital budgets to high-return, near term projects.

The merged company’s Board of Directors is expected to comprise 12 Directors, including eight members from Suncor’s current board and four members from Petro-Canada’s current board. John Ferguson, Suncor Energy Chairman, will serve as Chairman of the Board of Directors of the merged company.