COP Getting 50% Surmont On The Cheap From TotalEnergies HOUSTON – ConocoPhillips (NYSE: COP) today announced that it is exercising its preemption right to purchase the remaining 50% interest in Surmont from TotalEnergies EP Canada Ltd. for approximately $3 billion (CAD$4 billion), subject to customary adjustments, as well as contingent payments of up to approximately $325 million (CAD$440 million). ConocoPhillips currently holds a 50% interest as operator of Surmont and will own 100% upon closing. This transaction is subject to regulatory approvals and other customary closing conditions.
"Today’s announcement reflects our ongoing commitment to enhance our returns-focused value proposition, improving our ROCE, lowering our free cash flow breakeven and further supporting our $11 billion planned return of capital in 2023,” said Ryan Lance, chairman and chief executive officer. “Long-life, low sustaining capital assets like Surmont play an important role in our deep, durable and diverse low cost of supply portfolio. Upon close, we look forward to leveraging our position as 100% owner and operator of Surmont to further optimize the asset while progressing toward our overall interim and long-term emissions intensity objectives. We will remain on track to achieve our previously announced accelerated GHG intensity reduction target of 50-60% by 2030, using a 2016 baseline.”
The transaction is expected to close in the second half of 2023, with an effective date of April 1, 2023, and will be funded from either cash, short- and medium-term financing, or a combination of both. The transaction is subject to contingent payments for a five-year term of up to approximately $325 million (CAD$440 million) representing $2 million (CAD$2.7 million) for every dollar that WCS pricing exceeds $52 per barrel during the month ,subject to certain production targets being achieved. Additionally, the transaction is structured as an asset purchase and the tax pools will be commensurate with the purchase price of the asset, including associated contingent payments.
https://www.conocophillips.com/news-media/story/conocophillips-provides-notice-that-it-is-exercising-its-preemption-right-to-purchase-the-remaining-50-interest-in-surmont/
- same contigency formula used when COP selling 50% FCCL to Cenovus Energy in 2017 {representing $2 million (CAD$2.7 million) for every dollar that WCS pricing exceeds $52 per barrel during the month}
- COP is getting a really good deal for the 50% of Surmont that it doesn't already own
- MEG Christina Lake becomes takeover target #1 for SU if Surmont is no longer available
- we have not heard any M&A from MEG BODs and CEO DE so far but should COP get to own and operate 100% of Surmont, COP Surmont becomes a viable MERGER PARTNER to MEG Energy
* there are lots of opportunities to realize substantial economies of scale in production and transportation of both properties
* MEG Energy is an efficient and skilled specialist leading technology SAGD operator relative to COP Canada and would become operator for both Chistina Lake and Surmont were a merger to take place (?)
- so we have a three way dance
* both CVE and SU are rated first batters to buy out MEG Energy
* only way out for MEG to be bought out is to merge with COP Surmont
* IMO was a natural bidder for MEG but XOM is under pressure to move out of the Canadian oilsands so they will not allow IMO to bid for MEG
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