Canada’s Sunshine Oilsands starts pre-marketing for Hong Kong IPO

The oil sands company aims to raise up to $600 million from the first major listing in Hong Kong this year.
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The Athabasca River, in the heart of Alberta's oil sands
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<div style="text-align: left;"> The Athabasca River, in the heart of Alberta's oil sands </div>

Bankers started pre-marketing yesterday for a Hong Kong initial public offering of Calgary-based Sunshine Oilsands, which, according to one source, is aiming to raise between $300 million and $600 million.

If successful, the deal will be the first IPO of scale in Hong Kong this year. Seven companies have debuted on the main board so far, but none have raised more than $55 million. It will also be the biggest listing in the world so far in 2012, surpassing RusPetro’s $250 million IPO in London earlier in the month, Dealogic data show.

Hong Kong was the world’s biggest destination for new listings in 2011 for the third year in a row. Prada’s $2.5 billion offering was the biggest IPO last year and big names in the pipeline for this year include Chinese insurance company PICC and London-based diamond retailer Graff Diamonds, which are aiming to raise as much as $5 billion and $1 billion respectively.

Sunshine Oilsands plans to sell 25% of its share capital in the form of 339.2 million new shares, with 90% targeted at institutional investors. The remaining 10% will be offered to Hong Kong retail investors. The offering comes with a 15% greenshoe option.

Although other major oil sands companies are listed in Toronto, Sunshine Oilsands has chosen to come to Hong Kong because it wants to attract Asia-based investors. Also, its major shareholders are all Chinese corporations, which are more familiar with the Hong Kong market, the source said. The major shareholders include Bank of China Group Investment, China Life Insurance and Orient International Resources Group.

In a similar move, SouthGobi Energy Resources, a Canadian company with coal mining operations in Mongolia, obtained a dual listing in Hong Kong in January 2010.

Sunshine Oilsands’ major comparables include Athabasca Oil Sands, BlackPearl Resources, MEG Energy and Southern Pacific.

Many research analysts use proved and probable (2P) reserves and best-estimate contingent (2C) resources to value these companies. BlackPearl Resources’ oil sands projects have an implied value between C$1.00 and C$1.50 per barrel of 2P reserves and 2C contingent resources, while MEG Energy is valued at C$1.50 and Southern Pacific between C$0.50 and C$1.00 per barrel of reserves and resources, according to a syndicate research report.

Sunshine Oilsands, which was incorporated in 2007, says on its website that it focuses on the development of oil sands leases in the Athabasca region in Alberta, Canada. The company owns and controls 100% of roughly half a million hectares of such leases, which is equivalent to approximately 7% of the total oil sands leases granted in the Athabasca region.

After its 2011 drilling and seismic operations, Sunshine Oilsands evaluated its leases at 3.1 billion barrels of 2C resources and 419 million barrels of 2P reserves. None of its oil sands leases are operational yet, but the company is generating income from the production of heavy oil from its Muskwa property. Management estimates that it will be producing 1,600 to 1,800 barrels of oil a day by the end of 2012, with the first oil sands production starting in 2013.

Alberta’s government claims that its oil sands are the third-biggest proven crude oil reserve in the world, after Saudi Arabia and Venezuela. New projects are being added every year and production is expected to increase to 3 million barrels per day in 2018 from 1.31 million barrels per day in 2008.

Oil sands are a naturally occurring mixture of sand, clay or other minerals, water and bitumen, which is a heavy and extremely viscous oil that must be treated before it can be used by refineries to produce usable fuels such as gasoline and diesel, according to the website.

As China’s economy and demand for energy have grown, Chinese resources companies have been deepening their relationships with their Canadian peers in recent years.

Earlier this month, Athabasca Oil Sands announced that it has exercised an option to sell its 40% interest in the MacKay River oil sands project to Cretaceous Oilsands Holdings, a wholly-owned subsidiary of PetroChina International Investment, for C$680 million ($678 million). The move will give full ownership of such a project to a Chinese company for the first time, according to media reports.

In 2010, China Petrochemical Corp (Sinopec) bought a 9% equity interest in ConocoPhillips’s oil sands project Syncrude for $4.65 billion. The deal gave Sinopec a foothold in Canada’s oil sands.

According to the current timetable, Sunshine Oilsands will kick off the roadshow and bookbuilding on February 6 and the pricing is scheduled for February 14. The Hong Kong public offering will run from February 9 to 14.

The listing is slated for February 21. BOC International, Deutsche Bank and Morgan Stanley are joint bookrunners for the offering.

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