Suncor Energy (TSX: SU) is taking full control of the Fort Hills oil sands project in the Fort McMurray region of Alberta, while also taking a 50% working interest in the Surmont in-situ asset in the region as well. The acquisition follows the firm entering a transaction with TotalEnergies EP Canada, whom is selling its Canadian operations to Suncor.
Consideration under the transaction is to consist of $5.5 billion in cash consideration, along with potential earn-outs that amount to a further $600 million. The earn-out provision however is based on pricing of Wester Canadian Select, along with certain production targets. Funding from Suncor is said to come from debt, with net debt levels to “temporarily” exceed the current target range set by the company of $12 to $15 billion.
The company now expects to return to that target debt range in 2024, with 50% of funds flow after dividends, capital and non-operational benefits going towards paying down that debt, while the other 50% will be used for share buybacks. In terms of dividends, Suncor currently intends to increase the dividend by 10% once the transaction closes.
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Closing of the transaction is slated to occur in third quarter of 2023, subject to a waiver of the right of first refusal for the Surmont asset and customary closing conditions.
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The transaction is said to add a total of 135,000 barrels per day of net bitumen production capacity to Suncor’s portfolio, and 2.1 billion barrels of proved and probable reserves. Once closed, Suncor will have 100% ownership of the Fort Hills asset, which is expected to provide a long-life integrated bitumen supply for the firms Base Plant upgraders, following the end of life of the Base Mine in the mid 2030’s.
The Surmont asset meanwhile will have ownership split 50/50 with ConocoPhillips, with Suncor having the right of first refusal to acquire the remaining 50% working interest in the asset. The acquisition of the interest in Surmont is expected to add long-life production to Suncor’s oil sands portfolio. Upon closure of the Base Mine, the Surmont and Fort Hills interests are expected to replace half of the current bitumen production from the Base Mine.
“This transaction represents a major step in securing long-term bitumen supply to our Base Plant upgraders at a competitive supply cost. These are valuable oil sands assets that are a strategic fit for us and add long-term shareholder value. The acquisition also introduces flexibility and optionality into our long-range capital plan, providing us with further discretion in respect of the timing and scope of future oil sands developments,” commented Suncor CEO Rich Kruger.
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The transaction follows Suncor purchasing a 14.65% stake in Fort Hills back in January from Teck Resources for a figure of $688 million. At the time, TotalEnergies used its right of first refusal to acquire the remaining 6.65% interest sold off by Teck.
Suncor Energy last traded at $39.94 on the TSX.
Information for this briefing was found via Sedar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
