Becoming No. 1: Suncor's story

If the deal goes down, one of the first companies to pull oil from the sticky tar sands of Alberta is about to become Canada's biggest energy company and the fifth-largest in North America.

Suncor and Petro-Canada plan a merger that would give the company a market capitalization of $43.3-billion US. For comparison, energy giants Exxon Mobil and ConocoPhillips are worth about $326.6 billion and $55.97 billion, respectively.

What is Suncor?

Suncor not only pulls the oil from the oilsands, it transports it, refines it and sells it. The typical Canadian probably knows it best from its 280 Sunoco gas stations. People in southern Ontario know it as the company that runs giant refineries in Sarnia. Albertans know it as a giant employer in the oil sands but also as a natural gas producer, with operations in Alberta and British Columbia.

It has wind power plants in Alberta and Ontario and produces about  200 million litres of ethanol each year at its St. Clair plant in Ontario.

It moved its corporate headquarters to Calgary from Toronto in 1995, although its retail arm, Suncor Energy Products, remains in Toronto.

How did it start?

The U.S. based Sun company began selling kerosene and oils to armament plants in the Montreal area in 1917. By 1919, it opened its first Canadian office. At that time, it was importing fuel to Canada from the U.S.

The future of the company was written in 1923 when an Alberta Research Council chemist in Edmonton worked out a process to remove oil from sand with hot water — a process that would eventually make Suncor rich.

It's first effort at exploration in Canada was a bust—a dry hole in Nova Scotia in 1945. But it was pumping oil successfully in Alberta by the 1950s. It really rolled the dice in 1962 when it invested a quarter-billion dollars in the oilsands. Suncor calls it the largest, single private investment in the country at that time. By 1967, it was producing 45,000 barrels per day. It reached its billionth barrel by 2006. It hopes to produce more than half a million barrels per day by 2012.

Why merge?

"This merger creates a made-in-Canada energy leader with the assets, cost structure and financial strength to compete globally," said Rick George, Suncor's current chief executive.

The deal also would allow the two companies to cut $1.3 billion in annual costs through reduced capital spending and job reductions, according to Ron Brenneman, Petro-Canada president and CEO.

"In these difficult times, we believe that joining forces provides the strength we need to be a leader in value creation in an extremely competitive industry," he said.

Petro-Canada's portfolio spans Canada and the globe, with assets in the oilsands, the East Coast, Libya, the North Sea and elsewhere.

The new corporation boasts 7.5 billion barrels of oil equivalent (a unit used by the industry  that measures the energy released in a barrel of oil and is a way of combining oil and gas reserves and production ) per day in proved and probable reserves, the two companies said.

What could prevent the merger?

A proposed share swap must be approved by the boards of the two companies.

As well, a federal law known as the Petro-Canada Public Participation Act  prohibits any group from holding more than 20 per cent of voting shares in the former Crown corporation.

Ottawa is presently reviewing the merger.

Canada’s Competition Bureau must also look at the deal to see if it will reduce competition.

And the future of the company could depend on events completely out of its control. Analysts say a fully integrated oilsands project, in which the oil is both extracted and processed, requires oil prices to be upwards of $75 US a barrel. Crude prices were trading at more than $52 in late March 2009 but have been much lower in recent months.

Suncor recently halved its investment spending to $3 billion from a previous $6 billion.

The deal is slated to close in the third quarter of 2009.

Does Petro-Canada disappear?

The combined company will keep the Suncor name on the corporate level, but Petro-Canada's name will continue to appear at the service stations.

"We believe that Suncor has an excellent brand recognition in the investment community, and that's why we've chosen together to go forward with the Suncor name corporately," said Brenneman.

"But we also recognize that Petro-Canada has the No. 1 brand recognition in the Canadian marketplace, and so we want to take advantage of that by marketing our petroleum products jointly through the Petro-Canada brand," he said.

The takeover of Petro-Canada signals the end of an integrated oil company first created by the  Liberal government in the 1970s to assert Canadian control over the country's energy sector. Ottawa sold its last 19 per cent of Petro-Canada in 2004. 

Petro-Canada shareholders would own 40 per cent of the new company.

What is its environmental record?

In a 2007 report, the environmental group PollutionWatch found Suncor was the sixth worst greenhouse gas producer in Canada, emitting about 7.6 million tonnes of various environmentally degrading gases.

Suncor and some of its contractors face charges of illegally dumping waste water into the Athabasca river from a Suncor-owned work camp in 2008.

In 2007, Alberta regulators instructed Suncor to cap production at one of its sites because it was releasing too much hydrogen sulphide.