Two Canadian oil giants unveil deal to merge

Suncor Energy Inc. plans to acquire Petro-Canada for $15.5 billion, uniting two of Canada’s biggest oil companies as the nation’s energy industry retrenches.

If the deal announced Monday is approved, it would create the largest oil company in Canada, with a market capitalization of about $38 billion.

That’s much smaller than global heavyweights such as Exxon Mobil Corp. and ConocoPhillips, which boast market capitalizations of $326.6 billion and $55.97 billion, respectively, but the combined company would have some of the same benefits of scale.

The companies said they could save $244 million in operating costs and $812 million in capital efficiencies each year.

The deal comes during a period that could be the bottom for the oil industry, particularly the oil sands industry in Canada.

Both companies have put off projects to develop oil sands in Alberta because oil prices now are too low to make the projects viable. Production in Canada’s oil sands is extremely expensive because of the energy and water required.

Alberta’s once-booming oil sands sector has cooled as every major company has scrapped or delayed some expansion plans as the price of oil plummeted from its record high last summer.

Companies plowed money into recovering the high-cost oil as crude neared $150 a barrel, only to have prices tumble to five-year lows.

Suncor reported a fourth-quarter loss in January, the first in its history.

“We’re in a period here where financial uncertainty is very high on a worldwide basis. We have big-time volatility of commodity prices, and there’s no assurance of where we go from here,” said Rick George, president and chief executive of Suncor, who will continue in those roles in the new company.

“The super majors, particularly Exxon and Shell, can invest through the bottom part of the cycle and are improving their positions in Canada,” George said. “We at Suncor have two options. We can pull back, which we obviously did on a capital basis, or we do something that would really strengthen our position and allow us to come out of this cycle stronger than ever.”

Analysts say oil prices need to be $75 to $100 a barrel to make new oil sands projects economically viable. Crude prices were trading at more than $53 a barrel Monday, but have been much lower in recent months.

The deal is subject to approval by Canadian government agencies and shareholders of both companies.