More consolidation expected in oil sands

News reports that India’s biggest oil producer, Oil & Natural Gas Corp. is negotiating to buy a 100% interest in an unidentified mid-sized Canadian oil sands company has unleashed a flood of speculation in the ultra-competitive industry.

The May 20 report in the Indian newspaper, The Economic Times, picked up by Reuters news agency, said the company was listed on the Toronto Stock Exchange as well as on the Stockholm Exchange.

Takeover talk sent the share price of two Canadian junior oil sands companies, Pearl Exploration and Production (PXX-V) and Petrobank Energy and Resources (PBG-T) up 10 on the TSX Venture Exchange and $3.53 on the Toronto Stock Exchange, respectively. Both companies later denied that they had been approached by the mammoth oil producer.

India first signaled its interest in Alberta’s oil sands two years ago. Earlier this year, ONGC’s chairman and managing director, R.S. Sharma, declared that the company was talking to Canadian companies about investing more than $1 billion in oil sands projects.

Canada’s oil sands are believed to be the largest deposits of crude oil outside the Middle East with an estimated 174 billion barrels of recoverable bitumen and ONGC is not alone in targeting some of the smaller players in the field.

In late April, Total E&P, a subsidiary of France’s Total made a $9 per share cash offer for Calgary-based junior oil sands play Synenco(SYN-T).

The US$478 million offer represented a 22% premium over Synenco’s 30-day volume weighted average trading price of $7.35 per share for the period ended April 25.

Synenco holds 60% of the Northern Lights Partnership, with SinoCanada Petroleum Corp., a subsidiary of China-based Sinopec, owning the remaining 40%.

So far foreign acquisitions of Canadian oil sands companies include Korea National Oil Corp.‘s acquisition of the Blackgold mine from Newmont Mining(NMC-T, NEM-N); Statoil of Norway’s US$2.2 billion acquisition of the privately held North American Oil Sands; Total’s acquisition of oil sands minor Deer Creek Energy (DCE-T); MEG Energy‘s acquisition of Paramount Resource(POU-T)’s Surmont lease and Marathon Oil Corp.‘s (MRO-N) $6.6 billion takeover of Western Oil Sands (WTO-T).

But some analysts believe many more junior oil sands players will become takeover targets by foreign oil and gas companies. Blackmont Capital believes some of the most likely takeover targets in the coming years will be: OPTI Canada (OPC-T), UTS Energy (UTS-T), and Oilsands Quest (BQI-V).