Upstart Osum makes mark in oil sands, snaps up Orion project for $325-million

CALGARY – It has been a rough market for small companies in Alberta’s oil sands of late, as financing dried up and concern over transportation bottlenecks kept investors at bay.

But Osum Oil Sands Corp., a privately held company chaired by former Suncor Energy Inc. chief executive Rick George, is doing just fine, its chief executive said Tuesday.

“We haven’t forced anything,” Steve Spence said in an interview at Osum’s Calgary offices.  “We have very patient shareholders and a very strong and patient board who have a lot of oil sands experience who have helped us make the right decisions at the right time.”

Those shareholders include private equity players Warburg Pincus and Blackstone Group, BlackRock and Kern Partners.  Korea Investment Corp. and the government of Singapore’s investment arm are also backers.

On Tuesday, the upstart pulled the trigger on a $325-million acquisition, snapping up an oil sands property called Orion from Royal Dutch Shell PLC for $325-million in a deal that gives it something that has eluded other small oil sands players: a producing asset.  The deal is expected to close July 31.

“This actually provides us with a really good opportunity to step forward in our business,” said Mr. Spence, a former Shell executive.

Orion, located about 30 kilometres northwest of Cold Lake, Alberta has been in operation since 2007 and pumped about 6,700 barrels of bitumen per day from 22 steam-driven well pairs as of the first quarter of this year.  As part of the transaction, Osum said it had financing commitments from Barclays Bank PLC and Goldman Sachs Lending Partners LLC for credit facilities of US $225 million.

Shell has been looking to sell Orion since 2012.  It acquired the project as part of its $2.4-billion acquisition of BlackRock Ventures in 2006.

Merger and acquisition activity among small- and mid-sized companies in Alberta’s energy patch has picked up amid strengthening oil and natural gas prices and a revivial in the availability of capital, analysts say.  The industry has tallied seven transactions valued at US $2.5-billion so far this year, not including asset deals, according to IHS Energy.  That compares to US $2-billion in all of 2013, a 10-year low.

But oil sands properties have been the exception, with some analysts attributing a slowdown in activity to rules introduced by the federal government that effectively bar state-owned companies from taking controlling positions in the resource.

Growth prospects for smaller oil sands players have been thrown in neutral, as companies such as Southern Pacific Resources Corp. and Sunshine Oil Sands Ltd. struggle to convert large asset bases into cash producers.

Mr. Spence said buying Orion gives Osum cash flow to help develop a nearby oil field called Taiga, which the company says could produce up to 35,000 barrels of bitumen a day over time using steam-driven technologies.

“That forms the base and then lets us build out,” he said.  He said the company has pushed back construction of Taiga from this fall while it works to integrate Orion.  Taiga’s first phase could cost as much as $625-million.

Mr. Spence said Osum has benefitted from the involvement of Mr. George, who was appointed chairman of the privately held company in November 2012, shortly after stepping aside as chief executive of oil sands giant Suncor.  Suncor under Mr. George grew from a valuation of $1-billion to a market capitalization of more than $50-billion.  “He brings all that experience of you’ve got to break some eggs to make a cake,” Mr. Spence said.

Osum has been rumored as a potential candidate for an initial public offering.  However, Mr. Spence played down the option, saying the company has no immediate plans to test public markets.  “It’s not our time yet,” he said.

Recent News

  1. Waterous Energy Fund announces the final step of its acquisition of Osum Oil Sands Corp; shareholder meeting to be held April 30, 2021 to approve the transaction

  2. Waterous Energy Fund Announces Successful Take-Over Bid for Osum Oil Sands Corp., Commencement of Mandatory 10-Day Tender Extension Period, and Voluntary Resignation of Osum Directors and Officers

  3. Osum Board Withdraws its Recommendation that Shareholders Reject the Offer from Waterous Energy Fund

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