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Global energy giant BP PLC BP-N is selling its remaining stake in Alberta’s oil sands as part of a $1.2-billion deal that will also see it pick up part ownership of the Bay du Nord oil project off Canada’s east coast.

Calgary-based Cenovus Energy Inc. CVE-T will buy BP’s 50-per-cent stake in the Sunrise oil sands project for $600-million in cash, along with a variable payment of $600-million based on oil prices, which expires after two years. As part of the deal, BP will also buy Cenovus’s 35-per-cent stake in Bay du Nord, an undeveloped project off the coast of Newfoundland and Labrador approved by the federal government in April.

The move represents BP’s exit from oil sands production, reflecting its broader goal of pursuing energy production that comes with fewer greenhouse gas emissions.

Instead, the company says it will shift its focus to growing its offshore portfolio, adding to the list of six exploration licences it already holds in the Eastern Newfoundland region.

“This is an important step in our plans to create a more focused, resilient and competitive business in Canada,” Starlee Sykes, BP’s senior vice-president, Gulf of Mexico and Canada, said in a statement.

Cenovus, on the other hand, sees immense value in growing its holdings in northern Alberta.

It has operated Sunrise since the beginning of 2021, when it bought previous owner Husky Energy Inc. Cenovus is now in the early stages of applying its oil sands operating model at the site, which includes reducing the number of new well pads (therefore using less steam in production) and increasing well lengths.

Alex Pourbaix, Cenovus president and chief executive, said in a statement the company expects to increase production at Sunrise by about 10,000 barrels a day. while driving down operating costs and emissions intensity. Current production is approximately 50,000 barrels a day.

“Acquiring the remaining working interest in Sunrise enables us to fully benefit from the significant optimization opportunities available,” Mr. Pourbaix said.

But that doesn’t mean Cenovus is ditching its offshore portfolio.

Speaking at the Global Energy Show in Calgary last week, Mr. Pourbaix said onshore and offshore projects both have a role in the company’s future oil production.

The company continues to hold its stake in the White Rose field, around 350 kilometres east of Newfoundland.

White Rose produces about 26,000 barrels a day, but that number is falling as its oil reserves decline. A project to extend the field had been under a cloud of uncertainty since Husky put on the brakes in 2020, but Cenovus (which bought Husky in 2021) announced last month the West White Rose expansion project would go ahead, adding about 75,000 barrels a day to production.

Mr. Pourbaix said last week that while the oil produced there will have lower carbon intensity than crude from the oil sands, that has to be juxtaposed with the production challenges that accompany the offshore region’s rough climate and the fact the resource sits hundreds of feet underwater.

“It’s a very challenging place to operate,” he said.

“As a result, capital costs, operating costs are much, much higher than we have in the oil sands, where we know exactly where the oil is. There’s no exploration risk. We have largely perfected the methods of getting it out and can do so very reliably and at a very low cost.”

A research note from the National Bank of Canada Monday morning said the deal wasn’t a huge surprise. The bank had previously flagged the likelihood of Cenovus picking up more oil sands assets, given the company’s “recent proven success in applying its operating model ... to enhance operational performance and margins.”

A note from Bank of Nova Scotia BNS-T said the transaction falls in line with Cenovus’s strategy of consolidating and optimizing oil sands assets, adding it offers potential upside from increasing Sunrise’s production and improving its cost structure.

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