Related Articles
Forward article link
Share PDF with colleagues

Teck Cominco bulks up on oil sands

Canada’s largest integrated miner, Teck Cominco, has upped its oil-sands ante with the acquisition of junior partner SilverBirch Energy for C$485 million ($475 million)

Vancouver-based Teck – Canada’s largest producer of metallurgical coal and zinc – will gain SilverBirch’s 50% interests in the proposed Frontier and Equinox leases in northeast Alberta, securing full control of their development.

Teck said the deal would simplify Frontier’s ownership structure while it seeks partners in the project. Formal applications for the 277,000 barrels a day (b/d) mine were submitted to Canadian regulatory authorities on 25 November. “Teck has the opportunity to explore new potential partnerships and other alternatives to move Frontier towards development,” said Don Lindsay, president and chief executive officer.

SilverBirch’s remaining assets will be spun into a smaller company called SilverWillow, which will consist of the 100%-owned Audet and Birch Mountain in situ oil-sands holdings, estimated to hold 1.6 billion barrels.

The deal is subject to SilverBirch shareholder approval and is expected to close in April. RBC Dominion Securities and TD Securities have provided fairness opinions. The offer price of $8.50 a share is a 31% premium to the average trading price of SilverBirch shares on the Toronto Stock Exchange, reflecting the long-term value being placed on undeveloped oil-sands resources.

Young company with long history

Barely 18 months old, SilverBirch is a young company with a long history in Alberta’s oil sands. It is the successor to UTS Energy, which was bought by oil major Total in July 2010 for C$1.5 billion. UTS, previously United Tri-Star Energy, was the original owner of the Fort Hills oil-sands leases, which have been an on-again, off-again proposition since the mid-1980s. It gained full control of the land after Koch Industries pulled out of the project in 2003. Petro-Canada stepped in and eventually increased its stake to 60%.

Teck came on as a 20% partner in 2005, having gained its stake from Petro-Canada and UTS. But that wasn’t the end of the story. A decade of spiralling cost overruns peaked at more than $24 billion in 2008 and the 110,000 b/d Fort Hills project was put on the back burner after Petro-Canada merged with Suncor in 2009. A scaled down version was finally sanctioned for construction last year after Total bought out UTS.

While the deal makes sense for Teck, the mining company is still regarded as an unlikely oil-sands player in a sector dominated by large oil companies. But it is also one of the few Canadian companies with pockets deep enough to compete in the oil sands, and fund billions in future development costs. And it has a history of making big acquisitions in other areas of Canada’s resource economy. In 2008, Teck paid $14 billion for Calgary’s Fording Coal, to become the second-largest metallurgical-coal producer in the world.

With oil-sands deals by Chinese national oil companies in the opening days of 2012, it should come as no surprise that domestic players such as Teck are scrambling to bulk up on the low-hanging fruit. For smaller players like SilverBirch, it shows the oil sands are increasingly a game for firms with deep pockets. The days of the junior oil-sands miner are numbered; in that sense, SilverBirch is the last of its kind.

Also in this section
Rosneft strikes again in the Arctic
13 August 2020
The Russian oil firm has added more reserves to its ambitious Vostok Oil project
Latest licensing rounds
13 August 2020
The industry's most comprehensive list of current and recent rounds for onshore and offshore licences
Inaugural Somali regulator plots confident course
11 August 2020
Newly appointed Somali Petroleum Authority chairman and CEO Ibrahim Ali Hussein speaks to Petroleum Economist about his hopes for the Somali oil and gas industry