Suncor Energy Inc. has raked in $1-billion by selling natural gas assets on the fringe of its business, giving the oil sands giant a cushion as it weighs which of its potential growth projects deserve financial attention and how it can satisfy shareholders clamouring for dividends or buybacks.
The Calgary-based company sold the conventional slice of its natural gas business in western Canada to a partnership owned by the U.K.'s Centrica PLC and Qatar Petroleum. Suncor hung on to its unconventional natural gas properties – assets it may now choose to develop given that it is now short on natural gas.
The sale announced Monday gives Suncor greater flexibility in chasing its three priorities: Funding its existing oil sands projects, investing in growth, and returning money to shareholders. It also means Suncor is more focused, ditching so-called legacy gas assets and limiting its onshore natural gas to lucrative unconventional plays, particularly in the Montney region of British Columbia.
"We will continuously review and refine our portfolio of assets to ensure we are investing in projects that deliver profitable growth and strong returns for our shareholders," Suncor chief executive officer Steve Williams said in a statement.
Suncor has not detailed what it will do with the $1-billion, although spokeswoman Sneh Seetal said money will be directed toward the company's three pillars – covering costs at existing operations, growing, and returning money to investors.
"This will allow us to allocate our cash across those three priority areas," she said.
Analysts applauded the company, telling investors Suncor could ship the cash their way.
"The announcement strengthens the company's ability to maximize shareholder value by returning cash to investors through dividend increases and share repurchases, which we believe will continue to drive share-price performance in the coming quarters," Randy Ollenberger, an analyst for BMO Nesbitt Burns, said in a research note.
Andrew Potter of CIBC World Markets agreed: "Overall we view the transaction as a slight positive as it signals a continued focus on capital discipline by Suncor, and brings in further cash that could be deployed to additional share buybacks (which Suncor continues to pursue aggressively)," he said in a note.
While Suncor's oil sands assets are the heart of the company, it makes sense for it, along with its competitors, to control part of the natural-gas market as a hedge.
Now that Suncor sold its conventional assets, it may develop its Montney land, Mr. Potter predicted.
Suncor estimates the production from the conventional assets will be 42,000 barrels of oil equivalent per day, 90 per cent of which is gas. The deal is expected to close in the third quarter.
Suncor is considering a number of growth projects, ranging from expanding its Firebag in-situ operations to developing the Fort Hills mine. The company wrote off a $1.5-billion of investment in its Voyageur oil sands upgrader in February, meaning it believes it will be more profitable to send unprocessed bitumen south instead of processing it in Fort McMurray, Alta., near oil sands operations. Mr. Williams was not optimistic on its Joslyn mine – another project once in Suncor's expansion file.
The $1-billion deal is the largest Centrica has ever done in North America. The British company, which controls Direct Energy, said it wanted Suncor's conventional properties because they are legacy assets and it believes technology such as multistage horizontal fracturing can improve the wells' production, according to Wes Morningstar, a Calgary-based senior vice-president with the company.
Centrica will now be able to meet 60 per cent of the unregulated daily gas requirements for Direct Energy, it said in a statement. Centrica owns 60 per cent of the partnership that purchased Suncor's assets. Qatar Petroleum owns the remaining 40 per cent.