U.S. oil company ConocoPhillips COP-N said Friday it will exercise its right of first refusal and purchase TotalEnergies’ 50 per cent stake in the Surmont oil sands project for $4 billion.
The Houston-based oil company is currently the operator and the 50 per cent owner of the in situ oil sands asset near Fort McMurray, Alta.
In a news release, ConocoPhillips’ CEO Ryan Lance said Surmont is an important asset within the company’s diverse, low-cost portfolio.
“We look forward to leveraging our position as 100 per cent owner and operator of Surmont to further optimize the asset while progressing toward our overall interim and long-term emissions intensity objectives,” Lance said.
The U.S. company’s move to buy the remaining stake is a blow to Calgary-based Suncor Energy Inc., which announced in April its intention to acquire Total’s share of Surmont as part of a larger $6.1-billion deal that would also see Suncor acquire French company Total’s stake in the Fort Hills oil sands project.
On Friday, Suncor said that deal will now need to reviewed, since it was conditional upon ConocoPhillips waiving its right of first refusal for Surmont.
“Each of the parties has the right to terminate the agreement under which Suncor would acquire TotalEnergies’ Canadian operations and Suncor will be assessing the transaction in light of this change,” the company said in a news release.
Suncor’s desire to acquire Total’s oil sands assets was driven 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 was expected to add 135,000 barrels per day of net bitumen production capacity to Suncor’s oil sands portfolio, the company had said.
Scotiabank analyst Jason Bouvier said in a note to clients Friday that it still makes strategic sense for Suncor to negotiate the purchase of Total’s Fort Hills stake separately.
“However, we believe the purchase price is likely to be renegotiated,” he said.
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 Canada’s oil sands, while at the same time, Canadian companies such as Suncor and Canadian Natural Resources Ltd. have been consolidating their strength in the region.
For its part, TotalEnergies was set to exit the oil sands by divesting its assets through the deal with Suncor.
That means that ConocoPhillips’ intended acquisition bucks the trend and speaks to the U.S. company’s confidence in the value of its oil sands asset. ConocoPhillips said Friday it expects the deal will add approximately US$600 million of annual free cash flow in 2024, based on a West Texas Intermediate oil price of US$60.
“I think it’s a clear signal that Conoco does see value in its oil sands assets, and it does provide some diversity to its portfolio as well, which is largely focused on U.S. shale right now,” said Kevin Birn, vice-president and Canadian oil markets chief analyst with S&P Global.
ConocoPhillips – which is one of the members of the Pathways Alliance, a consortium of oil sands companies that have pledged to work together to reduce their greenhouse gas emissions from production to net-zero by 2050 – indicated Friday that adding to its oil sands stake won’t get in the way of its environmental goals.
“We will remain on track to achieve our previously announced accelerated GHG intensity reduction target of 50 to 60 per cent by 2030, using a 2016 baseline,” Lance said.
ConocoPhillips said the deal is expected to close in the second half of 2023, with an effective date of April 1, 2023.
Canadian oil sands production is expected to reach 3.7 million barrels per day by 2030, half a million barrels per day higher than today, according to a new S&P Global forecast.
The new forecast, which is 140,000 barrels per day higher than S&P Global’s previous estimate, is based on higher crude prices and continued efforts by oil sands producers to improve efficiency and output.