TotalEnergies sells Canadian operations to Suncor in deal worth up to $6.1B
CALGARY — The ongoing trend of foreign exits and Canadian consolidation in Alberta's oilsands continued Thursday, as Suncor Energy Inc. announced it will purchase TotalEnergies' stake in the Fort Hills oilsands project in a deal worth up to $6.1 billion.
The agreement means that Suncor will now own 100 per cent of Fort Hills, an oilsands mine located about 90 km north of Fort McMurray, Alta., after announcing last year it would buy out Teck Resources Ltd.’s 21.3 per cent stake in the project for approximately $1 billion.
It also marks the departure of TotalEnergies from the Canadian oilsands. The French company had announced last year it planned to exit the oilsands by spinning off TotalEnergies EP Canada, but said it decided to sell the operations instead after receiving several unsolicited offers including the one by Suncor.
In recent years, a number of foreign-owned companies — including Royal Dutch Shell, Norway's Statoil, and Oklahoma-based Devon Energy — have divested their holdings in the oilsands, while at the same time, Canadian companies such as Suncor and Canadian Natural Resources Ltd. have been consolidating their strength in the region.
According to energy consultancy firm Wood Mackenzie, working interest production in the oilsands will be 91 per cent owned by Canadian firms once the Suncor-Total deal closes.
Suncor, for its part, was motivated by the need to secure additional bitumen supply to support its Base Plant upgraders, should the company not get the needed regulatory approval for a mine extension.
Suncor's Base Plant mine is expected to be depleted by the mid-2030s, and the Total acquisition will add 135,000 barrels per day of net bitumen production capacity to Suncor's oil sands portfolio, the company said.
“This transaction represents a major step in securing long-term bitumen supply to our base plant upgraders at a competitive supply cost,” Suncor chief executive Rich Kruger said in statement.
Eight Capital analyst Phil Skolnick said in an interview that the move means sense, given the cost of a potential greenfield mine extension and the three to five years it would take to complete construction.
"The issue that Suncor has is the base mine is depleted, and they need something to replace that," said Skolnick.
"This is the best option, in my opinion. A greenfield project would be so costly and more time-consuming."
Suncor — which has set a goal to be a net-zero greenhouse gas emitter by 2050 — has recently been revamping its portfolio to focus on what it calls its "core" oil and gas business.
The company, which has been under pressure from well-known activist investor Elliott Investment Management to improve its share price performance, announced last year it would sell its wind and solar to Canadian Utilities Ltd. for $730 million.
It has also divested from its exploration and production assets in Norway and the U.K. North Sea.
“It’s about return. That’s truly what it comes down to. The focus on return is what investors want," Skolnick said.
But Duncan Kenyon, director of corporate engagement for Investors For Paris Compliance — which recently filed a shareholder resolution with Suncor, urging the company to be more transparent about how it plans to meet its net-zero-by-2050 pledge — said he thinks Suncor's focus on the oilsands is short-sighted.
“Total and most European oil and gas companies have been pulling out of the oilsands over most of the last decade. They understand this is a divestment of a high-cost, high-carbon barrel of oil," Kenyon said.
"But from Suncor, we're hearing a lot of what sounds like 20th-century thinking ... It really makes me question whether or not they understand how fast things are changing.”
Total's 50 per cent working interest in the Surmont in situ asset is also included in the Suncor deal, although ConocoPhillips Canada — which holds the other 50 per cent stake and is the operator of the Surmont project — has the right of first refusal.
Under the deal, Suncor will pay $5.5 billion in cash, plus up to an additional $600 million that is conditional on Western Canadian Select benchmark oil pricing and certain production targets.
The Calgary-based company said once the deal closes it intends to increase its quarterly dividend by about 10 per cent.
Companies in this story: (TSX:SU)
This report by The Canadian Press was first published April 27, 2023.
Amanda Stephenson, The Canadian Press