CALGARY — Petro-Canada (TSX:PCA) shareholders — many of whom have long pushed for big changes at the former Crown energy company — have given their overwhelming support to a multibillion-dollar merger with Suncor Energy Inc. (TSX:SU).
About 96 per cent of the votes cast Thursday at a Petro-Canda shareholder meeting in Calgary were in favour of the $19-billion deal, which will combine two of the country’s largest oil and gas companies.
“Together, Petro-Canada and Suncor will have a commanding presence as Canada’s largest energy company and the fifth largest in North America,” Petro-Canada chief executive Ron Brenneman told shareholders.
“The combined company will be large enough to compete in the top tier of global energy companies.”
Brenneman’s nearly decade-long tenure as head of Petro-Canada ends some time in the third quarter of this year, when the deal is expected to close. He will serve as vice-chair of the new company.
Suncor CEO Rick George will remain at the helm of the combined company. Suncor cast their votes in Calgary later Thursday afternoon.
Petro-Canada shares shot up five per cent to $47.25 Tuesday afternoon on the Toronto Stock Exchange. Suncor’s rose 5.3 per cent to $37.63.
In contrast to the overwhelming support for the Suncor deal, Petro-Canada shareholders just barely passed a motion for a stock option plan for the combined company.
The Petro-Canada shareholders voted 52 per cent in favour of the new stock-option plan, which would replace similar plans at the two individual companies.
“Somehow in that coming together, there was one proxy adviser company, RiskMetrics here in Canada, that chose to recommend voting against it. And I think that swayed a lot of the votes,” Brenneman told reporters after the meeting.
Facing a lagging stock performance in relation to its oilpatch peers, Petro-Canada began weighing different options around the beginning of last year to boost value for its stockholders.
The stock performance improved in the midst of the market meltdown of late 2008, thanks to Petro-Canada’s solid balance sheet and financial discipline, Brenneman said.
“Unfortunately, even at that time, many still believed that we would struggle without clear near-term growth opportunities and the uncertainty of the Fort Hills project execution,” he said, referring to the over-budget and delayed oilsands project Petro-Canada is undertaking with Teck Resources Ltd. (TSX:TCK.A) and UTS Energy Corp. (TSX:UTS).
“The merger clearly unlocked some of the value the market wasn’t attributing to Petro-Canada shares.”
The economics of Fort Hills have improved significantly since the partners revealed last fall the project’s pricetag swelled by nearly half to about $24 billion, Brenneman said.
Brenneman told reporters after the meeting that costs have come down by at least 30 per cent and that the project is currently viable with crude oil at US$60 per barrel, as opposed to the US$100 range some analysts said would be needed a year ago.
“That’s before we start looking at the ability to take advantage of the Suncor infrastructure. I think we should see that cost down a little bit even from that,” he said.
The two companies have not yet decided which of their shelved oilsands projects will be dusted off first after the merger, but analysts have said they expect Phase 3 of Suncor’s Firebag oilsands project to precede Fort Hills.
“The ones that have the best returns, the best economic returns and the potential for early cash flow will be the ones that get the nod early,” Brenneman said.
“It’s not a personal thing whether it’s a Suncor project or a Petro-Canada project.”
The two Calgary-based firms announced their plans to merge in March, saying the transaction would create an energy heavyweight with a stock market value of $46-billion.
“I really do think that this is the logical next step in the evolution of Petro-Canada,” Brenneman told reporters. “I’m actually delighted with the way this whole thing has come together.”
In addition to the blessing of shareholders, Petro-Canada and Suncor also must get the green light from the Competition Bureau — a process Brenneman said is going well so far.
“I’m hopeful that this thing will come together fairly quickly,” Brenneman said.