Canadian Oil Sands Ltd asked its shareholders on Monday to reject a hostile takeover offer by Suncor Energy Inc, saying it was weak and substantially undervalued the company’s ownership in Syncrude. Canadian Oil Sands, which has a 37 percent stake in Syncrude, is the largest shareholder in the country’s biggest synthetic crude project. Suncor has a 12 percent interest. Suncor shares fell about 1 percent and Canadian Oil Sands shares slumped about 2 percent in early trading on the Toronto Stock Exchange.
The Canadian Oil Sands board concluded that the offer was too low, Reuters reported on Friday. “The inherent value and synergies of Syncrude’s assets and the potential to acquire operational control of Syncrude are not reflected in Suncor’s bid,” Canadian Oil Sands said in a statement. Suncor Chief Executive Steve Williams said he disagreed, explaining the offer reflected a new business reality.
“It also represents an opportunity for investment in a financially stronger, more diversified and stable company that has considerable upside potential in a rising price environment, but can also deliver significant value, should oil prices stay lower for longer,” Williams said in a statement. Canadian Oil Sands provided updated projections on Monday, raising cost savings estimates for the Syncrude project for 2015 to C$1.3 billion ($1.00 billion) from C$900 million.
The company also lowered its production forecast for Syncrude to a range of 92 to 97 million barrels from 96 to 107 million barrels for 2015. Suncor, Canada’s largest oil producer, had offered to buy the company earlier this month, valuing it at C$4.3 billion as it sought to expand in the country’s oil sands. Following the hostile offer, Canadian Oil Sands adopted a poison pill to thwart Suncor’s hostile takeover bid.
A steep fall in oil prices globally since June last year has driven consolidations in Canada’s oil sands industry, which has one of the world’s highest operating costs and lowest prices. In September, Suncor bought a tenth of the Fort Hills oil sands project in northern Alberta from French oil company Total .
Canadian Oil Sands shares have plummeted nearly 44 percent to C$9.94 over the past 12 months, while Suncor shares are down less than 1 percent over the same period, at C$36.86. ($1 = 1.2967 Canadian dollars)