Suncor Energy (SU) announced that it has agreed to purchase an additional 10% working interest in the Fort Hills oil sands project from Total (TOT) E&P Canada Ltd., for total aggregate consideration of $310M at the time of announcement.
Advertisement
The deal comes as U.S. crude prices hover at around US$46 a barrel – around half of where they were a year ago – with no end to the doldrums in sight.
The transaction is subject to regulatory approval.
The Fort Hills project is an integrated oil sands project that includes a mine and bitumen extraction facility, situated 90 miles north of Fort McMurray in Alberta.
“We are acquiring an additional 10 percent of a C$15 billion project for C$1 billion”, said Suncor spokeswoman Sneh Seetal. The company believes that buying additional stake will lower its per barrel cost and improve return from the project. Finally, BMO Capital Markets lowered their price target on Suncor Energy from $48.00 to $44.00 and set an outperform rating for the company in a research report on Wednesday, July 1st.
Suncor’s incremental capital increase to the project is estimated at more than $1bn of which about $700m is remaining project spend.
Upon completion of the transaction scheduled in the fourth quarter of 2015, Suncor will have 50.8% stake in the $15bn Fort Hills project while Total and Teck Resources will hold 29.2% and 20% stakes respectively.
In a research note, CIBC analyst Arthur Grayfer said Suncor is getting a good deal for the price – the increased stake means an additional 18,000 barrels of day of production that won’t decline for 50 years. The operator’s target is to start up the project by year-end 2017.
Advertisement
“With engineering over 90% complete and construction surpassing 40%, Fort Hills is on track, with first oil expected in the fourth quarter of 2017”, CEO Steve Williams said in a statement. Zacks raised Suncor Energy from a hold rating to a buy rating and set a $30.00 price target for the company in a report on Monday, July 20th. Today, you can download 7 Best Stocks for the Next 30 Days.
