by: parkirPosted on:

Varcoe: With new CEO at helm, Suncor pulls set off on blockbuster $5.5B oilsands deal

Revealed Apr 27, 2023  •  4 minute learn

Wealthy Kruger, Chairman, President and Chief Govt Officer of Imperial participates within the CEO and Innovator Panel throughout the COSIA Efficiency Replace on the Telus Conference Centre in Calgary, Alta., on Tuesday, Oct. 18, 2016. Picture by Lyle Aspinall /Postmedia

It didn’t take lengthy for Suncor Vitality to make an enormous splash upon CEO Wealthy Kruger’s return to the Canadian oilsands.

Suncor Vitality introduced Thursday the $5.5-billion acquisition of TotalEnergies’ Canadian operations, a blockbuster acquisition that continues the consolidation throughout the Alberta oilsands — and the exodus of worldwide gamers from the world’s fourth-largest oil reserves.

The deal additionally will increase the Calgary-based firm’s manufacturing and offers a partial reply to the long-standing query of how Suncor can finest substitute bitumen output as soon as its base mine north of Fort McMurray reaches the tip of its life.

Kruger mentioned the deal is a “main step” in securing long-term bitumen provide for Suncor’s base plant upgraders when the bottom mine’s life span wraps up within the mid-2030s.

“These are worthwhile oilsands belongings which are a strategic match for us,” he mentioned in a information launch.

The settlement consists of 135,000 barrels per day (bpd) of bitumen manufacturing capability, with Suncor snapping up the French firm’s 31 per cent stake within the Fort Hills oilsands mine.

Heavy hauler trucks unload into a crusher at the Fort Hills oilsands project on Monday, September 10, 2018.
Heavy hauler vehicles unload right into a crusher on the Fort Hills oilsands undertaking on Monday, September 10, 2018. Picture by Vincent McDermott /Postmedia

It provides the Canadian firm full possession of the undertaking, a $17-billion improvement that was accomplished in 2018 however has struggled to achieve its full potential.

Suncor additionally acquires half of the Surmont thermal oilsands undertaking, which is co-owned and operated by ConocoPhillips.

The all-cash deal may embrace a further $600-million cost to France’s TotalEnergies, relying upon sure manufacturing targets and the benchmark worth of Western Canadian Choose heavy crude being met.

The acquisition marks the primary vital transfer by Suncor below Kruger, its new chief govt. The previous head of Imperial Oil got here out of retirement to take over the corporate simply 24 days in the past.

“All of it provides up,” mentioned Laura Lau, chief funding officer with Brompton Group, which is a shareholder in Suncor.

“It’s not a shock, Wealthy Kruger is there to get stuff executed.”

For Suncor, it marks one other key step ahead following a tumultuous 12 months that noticed a significant activist shareholder name for a shakeup, shine a highlight on current fatalities on the oilsands operations and unsuccessfully press the board to promote Suncor’s Petro-Canada retail chain.

Final June, CEO Mark Little left the corporate, which finally led to Kruger’s hiring.

Final 12 months, Suncor additionally added to its place in Fort Hills by buying a 14.6 per cent stake within the mine from Teck Sources for $688 million. In the meantime, TotalEnergies exercised its proper of first refusal to purchase a seven per cent curiosity in Fort Hills from the Canadian mining agency on the time, a stake Suncor had initially tried to accumulate.

The newest deal might be debt-financed and is anticipated to quickly push Suncor’s web debt previous its $12-billion to $15-billion goal, though the corporate intends to return to its deliberate vary subsequent 12 months.

For TotalEnergies, the transfer pre-empts its beforehand mentioned plan to spin out its Canadian oilsands belongings right into a separate entity by way of an preliminary public providing.

The corporate acquired a number of unsolicited affords for the belongings, together with from Suncor, which operates the Fort Hills undertaking. The provide from its accomplice within the oilsands mine materialized over the previous month.

“This quantity is similar to the $5-(billion) to $6-billion valuation at (an) preliminary itemizing of the spinoff firm, had the spinoff undertaking concluded,” TotalEnergies mentioned in a information launch.

For a global participant seeking to depart the oilsands, this made for a easy determination.

A number of multinational producers have already left the area, regardless of the large dimension of the useful resource base.

Analyst Phil Skolnick of Eight Capital mentioned the sale by TotalEnergies continues the development of European corporations leaving the oilsands amid decarbonization issues from traders, nevertheless it affords a extra distinguished position for Canadian-based producers in growing the useful resource.

It additionally means Suncor received’t essentially should construct a brand new oilsands improvement to switch manufacturing from its base mine, fixing a problem for the brand new CEO.

“It makes complete sense. The opposite selections they’ve are to do a greenfield undertaking . . . or they purchased — and shopping for makes far more sense than constructing,” Skolnick mentioned, citing regulatory hurdles and capital value dangers.

A worker walks beneath pipes at the Fort Hills oilsands project on Monday, September 10, 2018.
A employee walks beneath pipes on the Fort Hills oilsands undertaking on Monday, September 10, 2018. Picture by Vincent McDermott /Postmedia

Changing the bitumen provide to its two upgraders on the base plant north of Fort McMurray has been a problem below shut examination by Suncor officers.

Suncor does have an extension software on the bottom mine in place, which might produce about 225,000 barrels per day.

Nonetheless, federal Atmosphere Minister Steven Guilbeault wrote a letter to Suncor’s CEO final spring concerning the proposed extension plan, noting it will produce an estimated three million tonnes of emissions yearly.

“I’m of the opinion that the undertaking, as at present proposed, would seemingly trigger unacceptable environmental results inside federal jurisdiction,” he mentioned.

With the current deal involving Teck and the TotalEnergies transaction, Suncor has acquired 163,000 bpd of bitumen manufacturing capability to partially substitute the 260,000 bpd of base plant output.

Suncor paperwork point out the acquisition ensures it could preserve its upgraders full from the corporate’s Firebag, MacKay River and Fort Hills amenities upon the tip of the bottom mine’s life. It additionally has different choices into consideration, together with elevated thermal output from its Firebag South and Lewis properties.

Based on Sayer Vitality Advisors, that is the most important deal within the Canadian oilpatch since Cenovus Vitality’s $15-billion acquisition of Husky Vitality in 2020.

Sayer president Tom Pavic famous the acquisition was dearer on a per-barrel foundation than Suncor’s buy of Teck Sources’ stake in Fort Hills, however in keeping with different current asset gross sales within the oilsands.

“Mainly, they’ve the keys to the (Fort Hills) automotive now, and so they don’t have to fret about any companions,” Pavis mentioned.

“They’ll develop this at their very own tempo.”

Chris Varcoe is a Calgary Herald columnist.

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