Engineering company, WorleyParsons, has become the second Australian company to make a major sortie into the huge Canadian oil (tar) sands industry this week.
Worley yesterday revealed that it had agreed to buy Calgary-based Colt Companies for $1.13 billion which will give it greater exposure to the rising investment in the Canada’s oil sands sector.
It joins Transfield Services which earlier this week revealed that it had been selected as the preferred tenderer for a $A1.2bn five-year contract in Canada’s tar sands industry.
Suncor Energy said it had awarded Transfield (TSE) and Canadian joint venture partner Flint Energy Services, a mandate for exclusive negotiations for the asset management services contract.
Sydney-based Worley (WOR) said its purchase would be financed by a combination of debt and issuing shares.
According to a Worley presentation on the acquisition, Canada has the world’s second-largest oil reserves, at 179 billion barrels, 98 percent of which are within oil sands. Capital expenditure in Canada’s oil sands industry may exceed $C125 billion over the next decade based on announced investment projects.
Worley said around 2.5 million barrels of oil a day was produced from tar sands processing in 2005, with much of the output ending up in the voracious US economy.
The tar sands and other reserves make Canada the world’s eighth largest oil producer, ranking just behind Norway and larger than Venezuela, which also has large reserves of tar sands and other hydrocarbons.
“This is a unique opportunity for WorleyParsons to secure a leading position in one of the world’s largest- and fastest- growing hydrocarbons markets,” WorleyParsons CEO, John Grill said in the statement to the ASX.
WOR said Colt, which has been operating for more than 40 years, employs about 4,600 people through offices in Calgary, Edmonton, Sarnia, Toronto and Anchorage, Alaska.
WorleyParsons shares jumped 55 cents, or 2.5 per cent on Wednesday, to end at $A22.60. It would seem a bit of forewarning perhaps. But it was a bullish market with the world oil price hovering around $US58 to $US59 a barrel.
Trading in the shares was stopped yesterday while the financing of the Colt deal gets underway and is completed. That’s due to happen around next Wednesday, February 14.
The reason for the lengthy delay is the structure and size of the financing. It will be funded by $A333.2 million of debt, a $A479.9 million share sale to existing investors and $A342.3 million in exchangeable shares issued to the vendors. The share offer is priced at $A21 a share and will be underwritten by UBS.
The issues will be substantial: more than $800 million of WOR shares on a market cap of $A4.6 billion.
In its presentation WOR said the Colt deal represents 9.7 times Colt’s estimated earnings before interest, tax, depreciation and amortization for the year to January 31.
WOR said the purchase will boost its earnings per share for the 2007 calendar year 16 per cent “assuming a full-year contribution” from Colt, before cost savings or integration costs.
It’s a big play even for a substantial company: no worries about climate change, greenhouse or hot weather with this deal!
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In another announcement yesterday, WOR said its first profit rose 53 per cent in the period to December 31, driven by strong demand for engineering services in the oil, gas and infrastructure industries.
WorleyParsons net profit was $A94.5 million, or 45.7 cents a share. ($A61.8 million and 30.1 cents, a year earlier)
WOR said revenue rose 28 per cent to $A1.46 billion.
`We expect the markets for WorleyParsons’ services will continue to be strong,” CEO Grill said the profit announcement. “Subject to conditions remaining favorable in these markets, we expect to achieve increased earnings in the second half of 2007.”
“The successful completion of the acquisition of Colt will add further to those earnings.
“The company continues to evaluate opportunities for new business growth that will add to our existing capabilities and provide value for our shareholders,” he said.
The company said the purchase of Colt would create a market leader in the high growth Canadian hydrocarbons market.
Interim dividend for the first half was 28 cents, up from 18.5 cents in the previous first half. Net margin rose to 6.5 per cent from 5.8 per cent in the previous corresponding period.
