Suncor Energy strike $1bn TotalEnergies deal

January 2024 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

January 2024 Issue

Suncor Energy has announced the $1.07bn acquisition of the Canadian operations of French energy firm TotalEnergies in a deal which will boost the company’s bitumen production capacity.

Under the terms of the deal, Suncor will buy the 31.23 percent stake held by TotalEnergies EP Canada in the Fort Hills oil sands mining project in northern Alberta. With the acquisition, Suncor will own a 100 percent stake in Fort Hills, adding to its 100 percent ownership of in-situ assets Firebag and MacKay River and will gain access to a physically integrated, long-life bitumen supply. The deal is expected to close before the end of 2023.

According to Suncor, the deal will increase its current oil sands portfolio’s proven and probable reserves by 675 million barrels and net bitumen production capacity by 61,000 barrels per day. Suncor has been exploring options regarding the replacement of around 200,000 barrels per day of raw bitumen supply from Base Mine, its largest oil sands mine, which is expected to run out by the mid-2030s.

Suncor had originally struck a deal to buy TotalEnergies’ Canadian operations for C$5.5bn in April, in a transaction that would have included both its Fort Hills interests and its 50 percent stake in the Surmont oil sands asset and associated midstream commitments. However, Surmont operator ConocoPhillips exercised a right of first refusal, triggering a review of the deal.

The Fort Hills mine has struggled with operational challenges since it began production in early 2018. In 2022, Suncor forecast 5 percent lower gross production and higher operating costs per barrel at Fort Hills over the next three years as a result of long-term improvement plans for the project. According to Suncor, the additional interest acquired in Fort Hills will be subject to the company’s objective of achieving net zero greenhouse gas emissions from operations by 2050.

“The transaction secures additional long-term bitumen supply to fill our base plant upgraders at a competitive supply cost, addressing a key uncertainty for the company and adding long-term shareholder value,” said Rich Kruger, president and chief executive of Suncor. “With 100 percent ownership of Fort Hills we will pursue opportunities to create additional value through regional synergies and basinwide management of our unparalleled, integrated oil sands asset base. This transaction is aligned with our strategy to wholly own and operate long-life strategic assets.”

At the same time as the Suncor deal, TotalEnergies also announced the sale to ConocoPhillips of its 50 percent interest in the Surmont oil sands asset and associated midstream commitments. The transaction was for a base amount of around $3bn, plus up to around $330m in contingent payments.

“The disposal of our Canadian oil sands assets fits our strategy to focus our allocation of capital to oil & gas assets with low breakeven,” said Jean-Pierre Sbraire, chief financial officer of TotalEnergies. “Proceeds from these divestments will be shared with our shareholders through $1.5bn of buybacks in 2023, yielding an expected shareholder distribution of around 44 percent of our cash flow this year.”

According to the company website, Surmont’s net production reached 69 million barrels of oil equivalent in 2011. In the same year, ConocoPhillips signed a long-term commercial contract to process Surmont’s blended bitumen at a diluent recovery unit in Alberta, unlocking additional value for the asset. The company’s bitumen resources in Canada are produced using steam-assisted gravity drainage technology, which involves the injection of steam into the reservoir, effectively liquefying the heavy bitumen, which then is recovered and pumped to the surface for further processing.

“Long-life, low sustaining capital assets like Surmont play an important role in our deep, durable and diverse low cost of supply portfolio,” said Ryan Lance, chairman and chief executive of ConocoPhillips. “This transaction enhances our returns-focused value proposition, improves our return on capital employed, lowers our free cash flow breakeven, and is expected to deliver significant free cash flow for decades to come. We know this asset very well and plan to further optimise it while remaining on track to achieve our GHG emission intensity reduction goals.”

Richard Summerfield