ConocoPhillips to acquire TotalEnergies 50% stake in Canadian oil sands field for over $3 billion

(Bloomberg) – ConocoPhillips exercised its right to acquire TotalEnergies SE’s 50% stake in the Surmont oil sands field for as much as $3.33 billion, giving it full control of the Canadian operation.

The purchase includes a $3 billion price tag and as much as $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 funded with cash and short- and medium-term financing or a combination of those options.

Taking full control of Surmont’s low-cost production helps ConocoPhillips Chief Executive Officer Ryan Lance meet a commitment to return $11 billion in cash to shareholders this year by letting the company generate free cash flow at even lower crude prices. ConocoPhillips projected the purchase would add about $600 million of annual free cash flow next year, assuming a benchmark U.S. oil price of $60 a bbl.

“They are thinking about returns and free cash flow and being stewards of capital and putting shareholders first,” Phil Skolnick, an analyst at Eight Capital, said in an interview. Surmont is “a very good project,” he said.

Suncor, one of the largest players in Canada’s oil sands, had 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 has said it reached out to ConocoPhillips about the Surmont stake, with a message that it was willing to invest and grow the asset.

Suncor said Friday that both it and TotalEnergies now have the right to terminate their agreement because of ConocoPhillips’ decision and that it will be “assessing the transaction in light of this change.” TotalEnergies said in a statement that it would be “open” to completing a transaction with Suncor for the remaining assets from the original package.

ConocoPhillips rose after the announcement, reversing earlier losses to trade up 0.4% to $102.07 at 2:33 p.m. in New York. Calgary-based Suncor fell about 1% to C$38.42 in Toronto.

For Suncor, the Surmont site wasn’t an essential part of the deal with Total, which also included a 31% stake in the Fort Hills project and was focused on ensuring supplies for its Base Plant upgrader when other production streams run out as early as the next decade, Skolnick said.

While Suncor has an “offramp” from the TotalEnergies deal, “it wouldn’t surprise me if they continue to go with it and just buy the Fort Hills portion,” he said.

Oil is produced at Surmont, located in northeastern Alberta, by injecting steam into underground wells to force the region’s heavy bitumen to the surface. Surmont is the fourth-largest oil sands well site in Canada, producing about 135,000 barrels of oil a day in April.

Taking control also gives ConocoPhillips autonomy to operate the assets at a pace it prefers instead of coordinating with partners.