(Bloomberg) — ConocoPhillips has exercised its right to acquire TotalEnergies SE’s 50% interest in the Surmont oil sands field for up to $3.33 billion, giving it full control of operations Canadian company and thwarting the efforts of Suncor Energy Inc. to place.
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The purchase includes a $3 billion price tag and up to $325 million in contingent payments, Houston-based ConocoPhillips said Friday. The transaction is expected to close in the second half of the year and will be financed with cash and short-to-medium term financing or a combination of these options.
Taking full control of Surmont’s low-cost production helps ConocoPhillips CEO Ryan Lance meet his commitment to return $11 billion in cash to shareholders this year by enabling the company to generate free cash flow at lower crude prices. ConocoPhillips projected the purchase would add about $600 million in annual free cash flow next year, assuming a benchmark U.S. oil price of $60 a barrel.
“They think about returns and free cash flow and are stewards of capital and put shareholders first,” Eight Capital analyst Phil Skolnick said in an interview. Surmont is “a very good project,” he says.
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Suncor, one of Canada’s biggest oil sands players, agreed in April to buy TotalEnergies’ assets in the region in a roughly $4 billion deal. ConocoPhillips, however, had the right of first refusal on the French company’s 50% stake in Surmont. Suncor said it contacted ConocoPhillips about Surmont’s stake, with a message that it was open to investing and developing the asset.
Suncor said Friday that it and TotalEnergies now have the right to terminate their agreement due to ConocoPhillips’ decision and that it will “evaluate the transaction in light of this change.” TotalEnergies said in a statement that it would be “open” to entering into a transaction with Suncor for the remaining assets of the initial package.
ConocoPhillips rose after the news, reversing earlier losses to trade up 0.4% at $102.07 at 2:33 p.m. New York. Calgary-based Suncor fell about 1% to C$38.42 in Toronto.
For Suncor, the Surmont site was not a core part of the deal with Total, which also included a 31% stake in the Fort Hills project and focused on supplying its base upgrader when other production streams would run out by the next decade, Skolnick said.
Although Suncor has an “offramp” of the deal with TotalEnergies, “it wouldn’t surprise me if they just stuck with it and just bought the Fort Hills portion,” he said.
Oil is produced in Surmont, located in northeastern Alberta, by injecting steam into underground wells to force heavy bitumen from the region to the surface. Surmont is the fourth largest oil sands well site in Canada, producing approximately 135,000 barrels of oil per day in April.
The takeover also gives ConocoPhillips the autonomy to operate the assets at the pace it prefers instead of coordinating with partners.
(Updates with TotalEnergies response to sixth paragraph)
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