Oil refining specialist HollyFrontier (NYSE: HFC) will soon add a large asset to its portfolio, according to a report from Reuters. The article, citing “people familiar with the matter,” asserts that the company is in advanced talks to acquire Petro-Canada, the lubricants division of Suncor Energy (NYSE: SU) for slightly over $1 billion. HollyFrontier submitted the highest bid in an auction for the unit, according to Reuters’ sources.
Neither company has yet commented on the report specifically, nor on recent developments in the sale of Petro-Canada generally. This summer, it came to light that Suncor was looking to divest itself of the unit.
Assuming a deal is reached, it would represent a step back of sorts for Suncor. In 2009, it bought Petro-Canada in an all-stock transaction valued at roughly $15 billion.
The company has made a series of acquisitions since then, taking advantage of asset prices depressed by the weakness in crude oil prices. These include recent buys such as Canadian Oil Sands, and enough of a stake in the Syncrude joint-venture with Murphy Oil to give it a majority share. Although these purchases were relative bargains, they have added to Suncor’s indebtedness; at the end of its most recently reported quarter, long-term debt stood at over C$14.8 billion ($11.2 billion).
Petro-Canada would bring some diversity into HollyFrontier’s portfolio, which would be welcome because of those aforementioned low oil prices. The company will almost certainly have to tap debt financing in order to pay for the new asset — it held only $533 million in cash and equivalents at the close of its second quarter.
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Eric Volkman has no position in any stocks mentioned.
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