Synenco Makes Market Gains

News that capital costs are spiralling upwards at its Northern Lights project in the Alberta oilsands indirectly made Synenco Energy (SYN-T, SYEYF-O) one of the region’s largest market gainers in recent weeks.

The Calgary-based company reached a year-to-date high of $16.55 on May 2, giving it a 43% gain in just under a month, with those gains coming on the back of growing speculation that the company would be sold.

That speculation was fuelled by a May 1 press release from the company saying it was considering options to strategically reposition itself.

While the company didn’t directly say a sale was in the cards, it did say it was considering bringing in more partners to get better economies of scale, finding alternative commercial ventures, and “other corporate-level options that enhance shareholder value.”

Those words led the Street to conclude that a sale was the most likely option.

And while that could bring more value to shareholders, it comes with a caveat, according to Raymond James analyst Justin Bouchard.

Bouchard lowered his rating for Synenco to “outperform” from a “strong buy,” citing higher risks for oilsands startups. Bouchard’s 6- to 12-month target price, however, remained unchanged at $20.

Synenco’s sole asset is in the form of its 60% stake in the $10.7-billion Northern Lights project.

News of the repositioning came on the heels of an announcement that capital costs for the downstream portion of the project — the upgrader — have risen to $6.3 billion, a significant hike from the $1.9-billion projection the company made in 2005.

If Synenco is sold, it may not have to look far for a buyer. The company is currently partnered at Northern Lights with state-controlled Chinese major Sinopec (snp-n). While Sinopec lacks experience in the oilsands — Synenco is the operator at Northern Lights — the company has pockets deep enough for such an acquisition.

Sinopec has the right of first refusal if Synenco tries to sell its stake in the asset, but has no such right if Synenco is bought outright.

The company also said it was retracting its guidance regarding oil production by mid-2011. No new guidance was provided.