Value Microcaps Junior Energy

[lbas]

I think STP.V is up because Total made a bid for Synenco. At these oil prices, oil sands are a great strategic asset for those with the money to develop them.


http://www.theglobeandmail.com/servlet/story/RTGAM.20080428.wsynenco_staff0428/BNStory/energy/?page=rss&id=RTGAM.20080428.wsynenco_staff0428

Total snaps up Synenco Energy
NORVAL SCOTT

Globe and Mail Update

April 28, 2008 at 12:30 PM EDT

CALGARY — Oil sands junior Synenco Energy Inc. has found a buyer at last, announcing Monday that French super-major Total SA will acquire the company in an all-cash deal for around $478 million.

Calgary-based Synenco has been up for sale since last May, when the company said it couldn't afford to build its Northern Lights oil sands project — a $10.7-billion, 100,000-barrel-a-day oil sands mining and upgrader development that's 60-per-cent owned and operated by Synenco.

“Significant new capital would be required to develop Northern Lights,” said Synenco chief executive Mike Supple in a conference call. “These resources are more valuable in the hands of a company with the capital to develop them.”

Total will pay $9 a share for Synenco, a 16-per cent premium to the company's closing price on Friday of $7.79 per share. The boards of both firms have approved the deal, and Synenco has agreed to recommend that its shareholders accept the offer.



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That price is a substantial discount to Synenco's stock price when the company went public in November 2005, when shares in the firm were worth $17.50 each. Synenco did trade as high as $26 a share in 2006, while the firm was valued at around $750-million last May when it announced it was seeking a sale.

On Monday, Synenco shares surged to trade slightly above the offer price, changing hands at $9.02 per share at noon EDT, good for a gain of 15.7 per cent.

While oil sands negotiations typically take longer to resolve than those in the conventional oil and gas sector, the market saw the lack of resolution to the strategic review process as indicative that Synenco wasn't a particularly attractive target for potential buyers. In February, Synenco parted ways with then-CEO Todd Newton and said its board would take over the strategic review process.

From that point, the company engaged in negotiations with Total, resulting in the current deal, said Mr. Supple.

We've had a thorough review process with a worthy result. It's fair from a financial point of view,” he said.

Total will retain Synenco's current staff, who currently number about 60 employees, he added. Synenco has been laying off workers since last June, when it employed over 150 people.

William Lacey, a Calgary-based analyst at FirstEnergy Capital Corp., said Total would likely use Northern Lights to provide additional supplies for the upgrader it plans to build near Edmonton, in order to improve that project's economics.

Total is already a significant player in Alberta through its $1.4-billion acquisition of Deer Creek Energy in 2005, and is planning a $9-billion oil sands project called Joslyn.

“It looks like they're looking for ways to enhance their upgrader strategy and get more barrels behind it,” he said.

Mr. Lacey added that the nature of Synenco's assets – Northern Lights is far away from existing infrastructure, and is seen as relatively expensive to develop – likely dissuaded other bidders. Any buyer of the company would also take on a foreign partner, as the remaining 40 per cent of Northern Lights is held by SinoCanada Petroleum Corp., an arm of China Petroleum & Chemical Corp. (Sinopec).

“There's a lot of questions about these assets against others, and it's not a huge project from the perspective of guys looking to come in,” he said.