SUNCOR: STRATEGY WITHOUT HOPE
Suncor Energy today announced that it is sending a letter to shareholders of Canadian Oil Sands Limited ("COS"). The letter outlines the value of Suncor's offer to purchase all of the shares of COS against the poor performance and track record of COS and what Suncor believes are the severe risks facing COS as an independent company both now and in the future. Suncor strongly encourages COS shareholders to tender to its offer.
The text of Suncor's letter to COS shareholders is included below.
Dear Canadian Oil Sands Shareholders:
Despite falling oil prices and failing production, the COS Board and management have continued to tell you to "do nothing" to protect the value of your COS shares.
We think you deserve better, and with little time remaining before our offer expires, we felt it was important to correct some of the misleading information COS has published so that you can make a fully informed decision that serves your own best interests.
Consider the facts, and take the simple steps needed to tender your shares to our offer now.
Our offer expires on Friday, January 8, 2016 at 6:00 pm Mountain Time (8:00 pm Eastern Time).
The choice is quite simple.
- By tendering to our offer, you will receive a significant premium to the pre-offer value of your COS shares (today valued at 40%) and an immediate dividend increase of 45% above what you get today from COS. Through this 'all Canadian' offer, you will also own a stake in Canada's leading integrated energy company - a company with a rock solid balance sheet that has proven it can create shareholder value when oil prices rise, and when they don't. With Suncor, you will benefit from an even larger stake in Syncrude's operations in Canada's oil sands and a management team that has the operational expertise and resources to work with Syncrude's operator to make performance improvement happen. If Suncor does not receive substantial support for its offer on January 8th, 2016, we will look to pursue other opportunities.
- If you "do nothing" and our offer is rejected, you can expect the value of your shares to drop - sharply. Since October 2, when COS was trading at the $6 level, the value of your shares has been supported by our offer. Without our offer, you can expect COS shares will fall back to that level - and potentially even lower reflecting the roughly 20% drop in oil prices during this period (particularly given COS' claim that COS shares are 98% correlated to the price of oil). The market will also factor in the negative impact of the chronic and continuing operational challenges at Syncrude. Finally, you will be left owning shares in a company that we do not believe can create value in this market.
Despite all this, your Board is telling you that COS will be better off continuing as a standalone company. What they aren't telling you is that in this environment, it could take as long as ten years before COS would have enough cash flow to fix its balance sheet and reinstate a significant dividend. That's an awfully long time to wait, versus taking Suncor's premium offer and a higher dividend right now.
Consider the following, then decide for yourself who is acting in your best interests and whether you are better off going forward with Suncor or an independent, overleveraged and underperforming COS:
- COS Board members and management have almost no skin in the game, yet they want you to take a huge risk by rejecting our offer. Despite their overheated rhetoric and claims that COS would be a strong independent company, all COS Board members combined (including CEO Ryan Kubik) own less than 0.1% of the company's shares. If they believed their own rhetoric, wouldn't they own more than that? This is the same ten person group that took home total annual compensation of nearly $5 million in 2014 and oversaw more than $25 million in annual G&A spending in a company with no operations and about 30 people. During that same year, COS shareholders suffered a 48% drop in COS' share price. Then, early this year, you were hit with an 80% cut to your dividend.
- COS simply can't deliver value in the current 'lower for even longer' oil price environment. COS has demonstrated negative free cash flow, a credit profile one notch above "junk" status, and has a single asset, Syncrude, that continues to underperform. Based on the current outlook for oil prices, we expect COS will be bleeding cash again next year, even if it could achieve its most optimistic forecasts. This could force the company to make further cuts to its dividend, take on even more debt, or both. Making matters worse, oil price futures suggest we won't see US$55 per barrel until at least 2020, so any promised upside "torque" to rising oil prices is wishful thinking at best.
- COS continues to over promise and under deliver on Syncrude. In each of the past four years, COS has announced rosy production outlooks for Syncrude, then lowered its guidance multiple times over the course of the year and still failed to deliver on its promises. Four years in a row. Another operational upset in early December has prompted another reduction in COS' production forecast - just one week after COS issued 2016 guidance and proclaimed a "New Era" at Syncrude. What evidence has COS given you to suggest that by continuing to do the same thing over and over again the results will be any different, let alone better?
- There is no evidence a better offer will emerge for COS. COS has made a grand show of pursuing "strategic alternatives," but when pressed in front of the Alberta Securities Commission, COS admitted it has had only two meetings with potential buyers. The simple fact is that COS does not have a robust process underway. How would you feel if you had your house on the market for months and had only two showings? That is the fact of the matter. It is clear to us that COS' real agenda is to stay independent at any cost.
Suncor is offering you full, fair and immediate value for your shares, a significant dividend increase and a proven track record of value creation. We are also offering you a strong future in a proudly Canadian company with plenty of upside to rising oil prices and significantly less exposure to the major downside risks facing COS in the current (and expected) 'lower for even longer' oil price market environment.
The COS Board has a duty to act in your best interests, yet all they have done is tell you to "do nothing". It's time for you, the shareholders, to decide.
Act now to protect the value of your investment. To receive the value of our offer you must tender your shares to Suncor's offer before 6:00 pm Mountain Time (8:00 pm Eastern Time) on Friday, January 8, 2016.
For assistance in doing so, please contact your financial advisor, visit our website at suncorofferforcanadianoilsands.com or call our information agent, D.F. King, at 1-866-521-4427.
Steve Williams, President and CEO
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