Suncor Energy Inc. T.SU

46% Fort Hills stake may end up costing Suncor near nothing

[Clemxb7]

I expected it though I was still disappointed to see Total picked up its option for the 50% of Surmont. It was just too good a deal to pass up. However I should think most of the $6 billion in tax pools that Suncor was to get under the recent deal would come from the project with the higher and most recent cost overruns which would be Fort Hills.

The bummer about Surmont is the loss of reserves though remember anywhere you dig for 100’s of square kilometers in North East Alberta you hit the Oil Sands. Lack of oil sands should not be a problem in the far future.

As it now stands Suncor ends buying just short of the remaining 46% of Fort Hills for a reasonable $2.7 billion (CAD) via the two deals will Teck and Total.

Fort Hills cost $18 billion CAD to build of which 46% is $8.28 billion. Suncor paid $.32 cents on the dollar and likely got most of the associated tax pools. The deal could end up being for near free over time depending on what tax breaks Suncor gets.

The Fort Hills nameplate is 194k per day which they were very close to prior to covid. Current production is 131k per day and Suncor states it is confident nameplate can be achieved over time. At 131 k production Suncor has purchased 60 k a day. If nameplate is achieved then they bought 90k a day extra production.

The Fort Hills deal will allow the upgrader to run at 100% post 2035. Fort Hills adds 1 billion barrels of reserves lasting 40 years.

The Teck portion of the $2.6 total cost may already be paid off since that deal went down last year. Suncor will be receiving a fair chuck of change for it's recent divestments this year so the cost of the deal can be paid out of cashflow over a couple/few quarters at most.

That will hasten the 75% buyback trigger which is not a negative. As for the 10% dividend increase they should still do it based on Fort Hills.

[mrbb]

without the surmont piece now, SU retains the right to back out the original deal (Fort Hills + Surmont) and could re-start negotiation for the lone piece Fort Hills with Total. 

[Clemxb7]

Suncor does have the right to back out of the deal with Total for Fort Hills I just don't see why they would except if they were trying to get an even cheaper deal. The Suncor/ Total Fort Hills deal is better than the CP/ Total Surmont just on its face. CP paid $4.1 billion for long term production of ~75 k barrels a day. Suncor bought 60k production with  a possibility of 90k per day if

[ztransforms173]

- on the face of it, buying an open-pit bitumen mining operation (Fort Hills) is cheaper on a per barrel BOP basis over a SAGD property (Surmont) for the following reasons: * operating costs at Fort Hills are more than double those of Surmont on a per bitumen barrel basis * mining operations have open-pit geophysical risk that underground reservoirs do not - specific to Fort Hills versus

[mrbb]

* solvents and electromagnetic radiation (EM) are new technologies that favor SAGD over mining in the near future - today, Fort Hills has a lower GHG carbon dioxide (CO2) intensity per bitumen barrel than Surmont but that is expected to change in the next couple of years as solvents (propane) and possibly EM technologies are applied to Surmont just a quick comment, SU had piloted propane

[ztransforms173]

- as far as I can tell, MEG Energy is the leader in the high-tech SAGD SOR reservoir optimization field - Cenovus Energy Chistina Lake has the lowest SOR for any large SAGD operation in Canada just slightly ahead of MEG Energy Chistina Lake but the CVE reservoir is just a bit more saturated with bitumen (and bigger) than the MEG reservoir giving Cenovus an advantage in steam utilization   -

[Clemxb7]

I can't say for sure how the tax pools will break between Fort Hills and Surmont because I am just some guy on the internet who doesn't have any inside info. However Fort Hills is the more recent project and it did cost considerably more than Surrmont. Even if they break 50%/50% Suncor stands to gain back up to a billion $ or even more if it turns out Fort Hills has the higher tax pools