ConocoPhillips owns a 50-per-cent stake in the Surmont oil sands project near Fort McMurray (pictured) and it is expected to increase its stake in the project.Nathan VanderKlippe/The Globe and Mail
ConocoPhillips Co. COP-N faces a $4-billion decision on increasing its stake in Alberta’s oil sands, with analysts predicting the Texas-based company will step up and endorse an energy play that many global peers have abandoned.
Houston-based ConocoPhillips owns a 50-per-cent stake in the Surmont oil sands project near Fort McMurray, and holds a right of first refusal on the remainder of the property, which is currently held by Paris-based TotalEnergies SE TTE-N. ConocoPhillips operates Surmont, which was launched in 1997.
Last week, TotalEnergies agreed to sell its stakes in Surmont and the nearby Fort Hills property for $5.5-billion to Calgary-based Suncor Energy Ltd. SU-T, as part of the French company’s shift away from energy sources with high carbon emissions. Over the past decade, global companies such as Shell PLC RYDAF, Norway’s Statoil ASA STOHF and Marathon Oil Corp. MRO-N also exited the oil sands in part because of the projects’ relatively high emissions.
ConocoPhillips and ExxonMobil Corp. XOM-N subsidiary Imperial Oil Ltd. IMO-T have continued to invest in Alberta projects that make up the fourth-largest oil reserves in the world, while stepping up spending on emissions reduction. Analysts predict ConocoPhillips will push aside Suncor and buy the remainder of Surmont for more than $4-billion.
“Acquisition of Surmont by ConocoPhillips would be modestly accretive to the company’s free cash flow yield and earnings. Strategically, we also think ConocoPhillips is interested in this asset,” analyst Paul Cheng at Scotiabank said in a report. “The only remaining question is: What is the right price?”
To match Suncor’s offer for Surmont, which includes future payments linked to oil prices, Mr. Cheng said ConocoPhillips will need to spend $4-billion up front and offer Total up to $330-million in contingency payments. Other analysts say, given the cost, ConocoPhillips may choose to welcome Suncor as its new Alberta partner.
“It’s not certain where Conoco will go, if they want to be the 100-per-cent operator, or if they’re happy to have Suncor as a partner,” said Jonah Resnick, senior analyst at Wood Mackenzie. He said it makes sense for ConocoPhillips to increase its ownership, as Surmont “is one of the better large oil sands properties.”
On Tuesday, a ConocoPhillips spokesperson said the company is still reviewing Suncor’s offer for Surmont and declined to comment on the timing for a decision. The company reports quarterly financial results later this week. A spokesperson for Suncor also declined comment.
ConocoPhillips owns 100 per cent of its other Canadian holdings, including natural gas fields in northern British Columbia’s Montney region and undeveloped oil sands properties in Thornbury, Crow Lake, McMillan Lake and Saleski.
In February, ConocoPhillips announced it plans to spend up to US$11.3-billion in 2023 to increase global oil and gas production. The company devoted a portion of its most recent investor presentation to plans for maintaining production at Surmont, while cutting emissions through introduction of technologies such as carbon capture and storage (CCUS).
ConocoPhillips is one of the world’s largest oil companies, with operations in North America, Europe, Asia and the Middle East. The company earned US$18.7-billion in 2022. In 2021, ConocoPhillips signed a long-term agreement to process bitumen from Surmont at a facility in Hardisty, Alta., an oil transport hub, owned by Gibson Energy Inc. GEI-T and US Development Group, LLC.
ConocoPhillips and Imperial are the only foreign-controlled oil companies in the six-member Pathways Alliance, a Calgary-based group of oil sands producers focused on achieving net-zero emissions by 2050. Mr. Resnick said Conoco’s membership in Pathways gives Surmont access to CCUS hubs planned for northern Alberta. The $16.5-billion, government-backed project is currently in the design stage.
Pathway’s domestic members are Canadian Natural Resources Ltd. CNQ-T, Cenovus Energy Inc. CVE-T, MEG Energy Corp. MEG-T and Suncor. ConocoPhillips joined the group in November, 2021, shortly after it launched. The six companies collectively account for approximately 95 per cent of Canada’s oil sands production.