Thursday, April 27, 2023

Suncor Energy to Acquire TotalEnergies' Canadian Operations for $5.5 Billion ($SU)

We wrote in October about Suncor:

They had previously announced that they sold their wind and solar assets to a Canadian utility, and that covers much of the cost of this working interest purchase. The one remaining partner in Fort Hills is a French energy company that thinks oil will be obsolete by 2050. It is a great sign that our management is picking up barrels, and hopefully they will buy out the stupid, politically correct French super-major oil company.

Suncor just announced today that they did it!:

[We have] agreed to purchase TotalEnergies' Canadian operations through the acquisition of TotalEnergies EP Canada Ltd., which holds a 31.23% working interest in the Fort Hills oil sands mining project (Fort Hills) and a 50% working interest in the Surmont in situ asset. This will add 135,000 barrels per day of net bitumen production capacity and 2.1 billion barrels of proved and probable reserves to Suncor's oil sands portfolio. The acquisition is for cash consideration of $5.5 billion, with the potential for additional payments of up to an aggregate maximum of $600 million, conditional upon Western Canadian Select benchmark pricing and certain production targets. [...]

With Suncor's strong balance sheet the acquisition will be funded by debt. As a result, it is expected that net debt levels will temporarily exceed the company's $12-15 billion target range. The company will maintain the current allocation of funds flow after dividends, capital and non-operational benefits of 50% to debt reduction and 50% to share buybacks in line with the capital allocation framework. Suncor expects to return to within its target net debt range in 2024 based on current expected commodity prices. The acquisition is expected to strengthen the underlying business, result in increasing funds flow and be accretive to funds flow per share. Assuming the acquisition closes as contemplated, the Board currently intends to increase the quarterly dividend by approximately 10% following closing.

Excellent! As someone put it on a message board:

To sell 2 billion barrels of fully developed operational oil reserves + the tax pools for 6 billion is wild considering Canada is just aboot (hehe) to finish Transmountain essentially the day this deal closes. 

Less than $3 per barrel of reserves added. (Recall the Canadian producer equities trade at about 2x that.) You can see Suncor's presentation about the deal.

So far it seems as though we have made a good bet about which producers to own: not the woke super-majors, which put money into ESG boondoggles; not the U.S. shale players with short reserve lives; but Canadian oil sands with long reserve lives and heavy crude.

Suncor is due to announce Q1 results on May 8.

No comments: