With all of the talk circling around the Treasury and toxic assets today, a historic merger barely made the headlines. But this is pretty huge.
We've seen Suncor struggle along with the rest of the oil sands operators as it faces prices that are hostile even to conventional oil projects. I think the firm made its merger motivations most clear during the conference call, when CEO Rick George pointed to the ability of ExxonMobil
Petro-Canada, which is quite highly levered to lower-cost oil production, offers some much needed balance to Suncor's oil sands-heavy production profile. The combined firm will actually look quite a bit more like Canadian Natural Resources
As for the deal terms, Suncor is paying a fairly fat premium for Petro-Canada, but that's coming off of a significantly depressed base. Based on proved and probable reserves -- which ignores a great deal of oil sands potential -- Suncor's not necessarily getting more than it's giving up (remember that Suncor is paying with its own shares). The deal does look attractive, however, in terms of flowing barrels, which Suncor is picking up at a fraction of the cost of its currently halted Voyageur expansion, and for less than Penn West Energy
All things considered, I think shareholders on both sides should feel good about this deal.