Post by
mrmomo on Aug 17, 2023 9:06am
Fort Hills.....Is it worth it?
*This is a LONNNG read.......so be forewarned! And only for those with an IQ surpassing double digits or 100 (for those of you that can't count or fail to comprehend what that means) and with the capacity to FULLY understand not only complicated terminology & concepts but would be required to have a good grasp of very compex financial matters. So do NOT enter if you cannot do all of the above.......8). Enjoy!
To fight for it? To do what Suncor "possibly" can within reason to acquire it? And do they REALLY neeed it & make a move like that? Lastly, are there any OTHER viable options they can consider IF FH falls through and SU fails to consumate a deal? Some pertinent, crittical questions many investors (& especially s/h) would like SOME answers to. So to TRY and answer them, i'll give MY perspective and what i think SU SHOULD do........and should NOT do. Because i believe this is a pivotal part in it's history, a fork in the road so to speak, in which they have to make an important decision which may drastically alter it's future.
The first question i'll answer is do they really, absolutely need to make a move like that? The answer to this is a resounding YES and there's absolutely no DOUBT about it. Why? Well, the answer is simple. Suncor has a unique business model and they established this from the get go, from the very start. It's the ONLY Canadian entity operating in the Canadian O&G space which its sole purpose is to extract, actually "mine" Bitumen from the Oil Sands. No other producer currently operating in this space does this as its sole way to produce some form of oil. There are others like Cenovus & Canadian UnNatural who also do this, BUT those operations are also very diversified and have material amounts of natgas & conventional oil output.
For Suncor, it has only one purpose in life and nothing else, extract/mine heavy oil from the OIl Sands and THAT'S IT. I won't question WHY they decided to take this route, and evidently it did not go their way or as planned, but recently they've been doubling, tripling down on this path and this is where they intend to go.......no matter if folks, investors or s/h don't like it or agree with it. They've had ample time & opportunities over the years to TRY and diversify their operations to reduce theur exposure/risk, BUT they opted not to. Whether this was the right decision or its it even today.......remains to be seen. And everyring will hinge on a political outcome both north & south of the border in the coming 24 months which is not only totally out of their hands, but will/could determine JUST how long they will remain viable....relevant.
So when you ask if they really NEED to make a move like that, especially when you've decided with absolute conviction where you intend to go AND have doubled down, tripled down on that choice, then the answer is simple YES. They really need to make a move for its very existance and remian viable, competitive. In my opinion, it's too late for Suncor to "pivot" out from this choice and into something more "viable' and less toxic (in social acceptance terms!) like NG or conventional oil. Too much time has passed, the window of opportuniy has come & gone and all the great deals to diversify are no longer there. And above all, the time, money and sunken costs Suncor has put in it's operations are too "material" just too large to dismess, that it would be complete insanity from the to abandon it so easily.
Now that this is answered, the next question is "Does THAT move really need to be or just encompass Fort Hills? Well, they do HAVE other options, but before i answer & get into that, i'll just make a case WHY FH is so crucial and their best & only "reasonable" choice. As you all know by now, Suncor already has ~68% of Fort Hills and they're attempting to secure the remaining 32% by "attempting" to make a deal with Total Energies Canada's interest in that project. So far ALL attempts to secure those remaining interests have failed. Teck's 7% was either missed, miss handled, dismissed or not considered at all when it was put up for sale and was eventually acquired by Total themselves through ROFR clauses. So you really can't blame SU for that one. Or can you?
Regardless of what actually happened or who's at fault or how things went down, the fact remains that Total now holds the remaining cards in its hands for FH. To make you understand where i'm going with this and to have a good grasp on this situation, lets just briefly review the deal Total made with Teck for Teck's 6.65% interest ni the project. At the time the deal was done, which i beleive was in Q1 of 2023, the output from FH was approximately 100K-110K boepd, so let's just say about 105K to be on the safe side. Total paid $312M cdn for Teck's 6.65, which means that Total acquired ~7K boepd for about $45K per flowing barrel. Remember this point AND these figures....as they will be KEY later on.
Fast forward today, now Total themselves want OUT of the Canadian Oil Sands as did Teck and they've made THAT known to everyone and put up their combined ~32% of FH for sale. At some point in Q2 of this year, Suncor "attempted" to secure that remaining interest from Total. In a deal that was struck between them, which also included 50% of Surmont ontop of the 32% of FH, Suncor was "willing" (and Total was "willing" to sell!) to pay $6B for the whole package. As it was very difficult to associate an exact value for each property in that deal, at the time, we can probably do so now, with the deal that was recently struck. As you know the sequence of events that happened since then, with ConocoP surprisingly excercising" their ROFR on Surmont which led to the demise of the deal between Suncor & Total. Which in turn left them both in limbo, in a what seems to be a stalemate of sorts over the leftover, which in this csse is FH.
But all is not lost! If we actually review the eventual outcome from ConocoP's ROFR on the Surmont asset and them acquiring Total's 50% interest in that project, we can see that ConocoP paid about $4,5B cdn in total. So if we ran some numbers, added a bit of logical deduction and assumed that Conoco had to at least match what Suncor intened to buy (pay for!) the Surmont asset, we can easily see that the Surmont portion was worth that much in the failed deal netween Total & SU. Or $4,5B. Which means that out of the $6B price tag in the deal worked out previously between SU & Total, $4,5 was for Surmont and the remainder or $1,5B, supposedly, evidently was for Total's ~32% stake in FH. Which if we do a bit more DD & add some more logic, tells us that those assets were sold for aprox $45K per flowing B......again. So here again, take not of those crucial numbers.....
So what seems to be the problem now? With the Surmont assets being consumated & finalized, why hasn't a deal between Total's only remaining interest in Canada, it's 32% stake in FH still has not been done between them & SU? Was there no clause or contigency plan in place "in case" ConocoP exercised their rights? Was there ever ANY, at all, in the initial deal? And if not, was that intentional, planned or just plain incompetence? Who knows and who cares at this point, because what is done is done. We are at the point we are and it doesn't matter what anyone thinks or says, s/h or not. If you're a holder you'll just have to accept it & move forward. But regardless whether you are or not, we can all agree this is some great popcorn drama for the stock market aficionado of which we all like to know all the dirty little details and how it eventually ends.
So with Surmont spoken for and with 32% of FH still up for grabs, and both SU &Total "seemingly" STILL involved in some sort of ongoing discussions, how could this play out? And why is it taking so long? Well, it seems pretty evident that neither Total or SU had ANY contingency plan or Plan B in case CP acted. With that aside, assuming they're still in talks to hammer out some deal for leftovers FH, why the delay? Usually, the most likely culprit in a situation like this is "usually" a dispute in terms or price......maybe even both. Remember those figures we mentioned earlier? In both cases, the KEY figure there was the $45K per flowing barrel. So if you apply this to todays terms & realities, with FH now at about 110K boepd, that would mean a price tag of ~$1,6B. So it's evident the the price has "moved up" a little through the combination of several factors. Was this ever dicussed or taken into consideration and is THIS the MAIN sticking point? Price?
Because everything else being equal, it seems quite evident that Total REALLY wants to sell and Suncor REALLY wants to buy, but maybe not on each others terms or deisred price or both. So is it REALLY worth it for SU to keep fighting hard for FH, even if they have to "maybe" give a little slack and pay up a bit more? My answer is YES, a reasounding yes for many many reasons i don't have the time or inclination to keep discussing & typing out on here. And especially when you take into consideration other less viable much more expensive options avaiable on the market. options which may have unforseen risks associated with them wihch may cause some unwanted harm to the company long term and probably NOT worth the money, time & effort spent to try and acquire them. They KNOW FH like the back of their hands, and all the risks that go along with it, which makes it an extremely valuable asset for the company to acquire in it's entirety & hold in THEIR hands for good.
As this is a long commentary already, and hope some of you were enlightened by some of the comments made, i will not touch upon......today.... the "alternatives" or OTHER options Suncor has in case their acquisition attempts to secure FH falls apart. But i will get deep into that subject matter maybe sometime next week or so.....to see exactly what viable OPTIONS Suncor really does have. So until that time, reflect on what was said here.......
GLTA
*Sorry if there's any typos or spelling errors, but as i 've stated frequently on here, my mind works much faster than my little fingers when i type and I DO NOT proof read most of the time. But i'm sure you guys will figure it out and get its intended meaning nonetheless.