Low oil prices force merger of Canadian giants

March 24th, 2009 - 1:41 pm ICT by IANS  

By Gurmukh Singh
Toronto, March 24 (IANS) With global oil prices well below their production costs, Canada’s top two energy companies have decided to merge to create one of the world’s biggest oil companies to weather the crisis.

Petro Canada and Suncor Energy Inc. announced Monday that they are merging to create a $43.3-billion energy giant.

Canada, which has the world’s second largest energy reserves after Saudi Arabia, extracts most of its oil from the sands of Alberta province. But while its costs them $75-90 to extract a barrel of oil, the $50 current global price has made Canadian companies unviable. Monday’s merger decision by the two giants is aimed to pool their resources to remain viable.

The merger will eliminate overlapping operations,saving the merged company $300 million in operational costs alone.

It will also save up to $1 billion by eliminating redundant spending and targeting capital efficiently at high-return projects. The new company will be North America’s fifth largest and operate under the Suncor name.

Suncor CEO Rick George, who stays in the top position, said the new company will follow a disciplined approach. “It will not be scattergun (approach). But it will be a Canadian oilsands-centric type of strategy,” he said. Petro-Canada CEO Ron Brenneman, who will be the executive vice chairman in the new company, said.

“There is a total resource base combined in these two companies - of undeveloped resources - that amount to the equivalent of 19 billion barrels of oil. That really represents the future of the company.”

He said they saw “the advantage of creating a much more globally-competitive enterprise by putting the two companies together and certainly size would be an aspect of that.”

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