Company News

Suncor Completes Merger

Analyst says downstream challenges remain for integrating Petro-Canada
CALGARY, Alberta -- Suncor Energy Inc. completed its merger with Petro-Canada on August 1, and the "new" Suncor Energy began trading on the New York Stock Exchange yesterday.

"This is an important milestone for Suncor and for Canada," said Rick George, president and CEO. "Bringing together these two great success stories creates the premier Canadian energy company with the assets, people and financial strength to take on the global competition. This is the start of an exciting journey."

Suncor Energy is now Canada's largest energy company and the fifth largest North [image-nocss] American-based energy company by market value. The new Suncor combines a leading position in Canada's oil sands with complementary operations in refining and marketing, North American natural gas production and conventional production internationally and offshore East Coast Canada. The company also holds a significant position in Canada's emerging renewable energy industry with wind power projects and biofuels production.

While the company will operate corporately and trade under the Suncor Energy name, it will maintain the trusted Petro-Canada brand for its refined products and national retail network, and as a proud partner of the 2010 Olympic and Paralympic Winter Games.

The combined company's current upstream production is approximately 710,000 barrels of oil equivalent per day. Plans for future development and Suncor's next stage of growth projects will be determined based on projected rates of return, near-term cash flow and risk profile. Efficiencies resulting from the merger are expected to contribute annual reductions of $1 billion in capital spending, in addition to expected annual savings of $300 million in operational expenditures.

"We will move quickly on getting the right people focused on the right opportunities," said George. "In the near term, the focus will be very much on the people that are the foundation of this company and ensuring safe, reliable and environmentally responsible operations. By the end of the year, we expect to provide details about our strategy going forward.

Downstream, kick starting the new company may be more difficult, according to analysts. The company must integrate more than 12,000 employees and operations from coast to coast and abroad, according to a report in the Calgary Herald.

"I don't think it will be easy at all," Phillip Skolnick, analyst at Genuity Capital in Calgary, told the newspaper. "We're talking about a company with a big mix of downstream assets. There's a lot of moving parts in this company."

While Skolnick expects management will eventually overcome the challenges, it could take several years before the transition is fully complete. "I just think the market may not be appreciating the difficulties around it," he said.

This past week, one of the executives heading up the integration of the two firms said that work on the merger is "on track."

"We are working on the 100-day plan, as we call it, for the merged company, planning for which includes capture of merger synergies," Harry Roberts, Petro-Canada's chief financial officer, said during his company's final conference call, according to the newspaper.

Both companies have started to cut management ranks, but it may be another six weeks until the rest of the employees know their future with the new company.

"Once the merger closes, that's when we can start having leaders do their organizational designs, figure out what's required, and how can we achieve the business goals going forward," said Suncor spokeswoman Shawn Davis. "That's when our selection process will begin."

Here's a look at what the merged company looks like:

REFINING & MARKETING Refining capacity: 433,000 barrels per day Retail sites: 1,646 PRODUCTION Oilsands (barrels per day): 287,900 Conventional oil: 243,900 bpd Natural gas (millions of cubic feet): 908 Total (barrels of oil equivalent): 683,100

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