Suncor offers TotalEnergies over $4.1 billion for oil sands assets previously slated for spinoff

Suncor Energy, Calgary, agreed to acquire TotalEnergies’ Canadian oil sands operations for $5.5 billion (Can.) in cash (about US $4.1 billion), with the potential for additional payments up to $600 million (Can.), conditional upon Western Canadian Select benchmark pricing and certain production targets.

Suncor’s offer to acquire all shares of TotalEnergies EP Canada Ltd., which holds a 31.23% working interest in the Fort Hills oil sands mining project and a 50% working interest in the Surmont in situ asset—both in the Athabasca region of Alberta—came through over the last month, TotalEnergies said in a release Apr. 27—one of ‘several’ unsolicited offers the company received following its announced plan to spin-off the assets (OGJ Online, Sept. 29, 2022).

Early this year, the TotalEnergies affiliate exercised its preemption right to acquire Teck Resources Ltd.’s 6.65% interest in the Fort Hills project for $312 million (Ca.), increasing its share to the current 31.23% (OGJ Online, Jan. 27, 2023). That deal took a bite out of Suncor’s October 2002 deal with Teck Resources to acquire an additional 21.3% interest in the project. Suncor’s revised deal saw it gain an additional 14.65% (OGJ Online, Feb. 3, 2023).

For Suncor, the deal will add 135,000 b/d of net bitumen production capacity and 2.1 billion bbl of proved and probable reserves to Suncor’s oil sands portfolio, the company said in a separate release Apr. 26.

Reserve life, upgrader utilization

Upon closing, Suncor would have 100% ownership of Fort Hills, which along with the Firebag and MacKay River in situ assets, helps secure long-term bitumen supply in the Fort McMurray region to fully utilize Suncor’s Base Plant upgraders “at a competitive supply cost,” post the end of the Base Mine life in the mid-2030s.

It also introduces “flexibility and optionality” into the company’s long-range capital plan, providing Suncor with “further discretion in respect of the timing and scope of future oil sands developments,” said Rich Kruger, Suncor president and chief executive officer.

The Surmont in situ project is operated by ConocoPhillips Canada and upon closing, each of Suncor and ConocoPhillips will hold a 50% working interest. Under the terms of the Surmont joint venture arrangements, ConocoPhillips holds preemptive rights including a right of first refusal on the 50% Surmont working interest.

Deal closing is targeted for the end of this year’s third quarter, subject to waiver of the right of first refusal on the Surmont working interest and other customary closing conditions, including receipt of all required regulatory approvals.

The timing of the right of first refusal is unclear, as is the exact value the deal ascribes to Surmont, said Jefferies analysts in a research note Apr. 27. Surmont accounts for about 4% of ConocoPhillips’ total 2023 production and about 7% of its oil production, the analysts said, and while “Surmont is an attractive low decline asset, [ConocoPhillips] does have deep inventory of low decline assets globally (Alaska, Qatar, APLNG).”