Canada’s oil sands mergers get painfully pricey

Fat wallets and limited opportunities elsewhere may continue to push acquisitions in Canada’s oil sands region, analysts say, though soaring costs may leave the sector open to only the very biggest companies.

“Producers are flush with cash and their opportunities globally are getting slimmer because their access to resources is getting cut off in other countries,” said Andrew Potter, an analyst with UBS Securities. “That makes the oil sands look pretty compelling.”
More than C$17 billion ($16.2 billion) in deals has been announced or wrapped up so far in 2007. The region is attracting new entrants like Marathon, and Norway’s Statoil (STL.OL: Quote, Profile, Research), which paid nearly $2 billion for an early-stage oil sands venture earlier this year.

Other mergers closed this year include a joint-venture partnership that combined some of EnCana Corp.’s (ECA.TO: Quote, Profile, Research) oil sands properties with two ConocoPhillips (COP.N: Quote, Profile, Research) refineries in the United States and Shell’s C$8.7 billion buyout of the minority stake in its Canadian unit.

But with those deals, analysts say good properties are getting much harder to find and more expensive to either acquire or develop.

“There isn’t much left there for assets,” says Kyle Preston, an analyst with Salman Partners.

Finding large, high-quality assets may be difficult because many, such as the Shell-operated Athabasca project in which Western has a 20 percent stake, are already controlled and operated by the large integrated companies themselves.

Reuters