4 Factors That Could Sway COP To Buy Total 50% Surmont
1- Partial Upgrading
- new technology that applies moderate pressure and temperature to break down the heavy asphaltene molecules in bitumen that cuts the diluet requirement by about 1/2 for pipeline shipping
- the capex is moderate for an upgrading plant (maybe $ 400 to 600 million for about 100,000 bitumen bbls/d of capacity?) compared to a full blown upgrader producing SCO
- this will dramatically change and improve the economics of blended bitumen by reducing the massive diluent expense and increasing the pipeline egress capacity by ~ 18%
- the technology is in a testing phase in small scale demonstation plant (MEG, CVE and CNQ are doing work in this area)
2- Citgo USA is being sold off to pay off Venezuelan court damages
- COP is one of the large creditors in those court cases so they can get hundreds of millions of dollars in compensation though nowhere near the USD 8 billion they were awarded
- they have ~ USD 9 billion in cash @ 3/31/2023 and are going to return ~ USD 11 billion to shareholders in 2023 (dividends + variable dividends + share buybacks)
3- The WTI/WCS price differential is expected to compress substantially as the TMX pipeline starts shipping next year which will boost Surmont operating margins
- say USD 5 per WCS barrel (?) is a lot of money for a 140,000 bbls/d SAGD production site in increased operating earnings
4- Great F/X translation rate for a US-based company buying Canadian assets
- strong USD buying cycle which might not last as it loses reserve status in the future
- COP is no Equinor selling ATH at 18 CENTS per share
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