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Suncor Energy deploys piggybank
GARY PARK For Petroleum News
Suncor Energy has scooped C$310 million out of its cash stash to add a 10 percent stake to the 40.8 percent share it has as operator of the next big oil sands project due on stream in Alberta.
The seller is Total E&P Canada, a wholly owned division of France’s Total, which will keep 29.2 percent of the Fort Hills project, leaving 20 percent with the mining conglomerate Teck Resources.
Suncor said the transaction, which can be completed within its current capital budget for 2015 of C$5.8 billion to C$6.4 billion, demonstrates its continuing confidence in the oil sands sector.
“With engineering over 90 percent complete and construction surpassing 40 percent, Fort Hills is on track, with first oil expected in the fourth quarter of 2017,” said Suncor Chief Executive Officer Steve Williams.
The C$13.5 billion Fort Hills mine is designed to reach an eventual peak of 180,000 barrels per day.
Total said the deal further shrinks its exposure to the high-cost oil sands. Last year it abandoned Joslyn, a separate C$6 billion mining venture that once targeted 100,000 bpd, with first oil due in 2017. Total held 28.75 percent of that project, with Suncor at 36.75 percent, followed by Occidental Petroleum with 15 percent and Inpex Canada at 10 percent.
Cash for ‘distressed assets’ Earlier in September Williams said his company’s cash holdings of C$5 billion could be used to buy “distressed assets (in) fire sales.”
“We have too much cash on our balance sheet,” he said. “We’ve been generating more cash than we anticipated when we put that C$5 billion in the bank.”
Williams said the slump in oil prices put the squeeze on some companies, indicating there could be acquisition opportunities that didn’t exist six months ago.
He said the spread between what buyers like Suncor are willing to pay and what distressed sellers are willing to accept has narrowed significantly.
“Clearly prices are coming down (while) time is on our side in terms of waiting,” Williams said.
He also said that allocating new capital to new internal projects would be unwise in this period of low oil prices.
What frustrates Suncor is the “stupidity” of pipeline politics in the United States and Canada, he told an energy conference in New York.
There is “no monopoly on that stupidity in the United States, though we have a fair amount of it (in Canada) as well,” Williams said.
Suncor currently has contracts in place to ship 600,000 bpd through existing pipelines, but progress is needed on new pipeline projects if there is to be any hope of further growth in the oil sands sector, he said.
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