ConocoPhillips exercises preemption right to become sole owner of Canadian oil sands asset

ConocoPhillips Canada elected to exercise its preemption right to purchase the remaining 50% interest in the Surmont project from TotalEnergies EP Canada Ltd. and become sole owner of the Alberta-region thermal project, the company said in a release May 26.

The deal, which ConocoPhillips said was reached for $4 billion (Can.) (US$3 billion) plus contingent payments up to about $440 million (Can.) (US$325 million), comes on the heels of one Suncor Energy struck with TotalEnergies last month.

In April, Suncor agreed to acquire all shares of TotalEnergies EP Canada Ltd.—holder of the Surmont in situ asset plus a 31.23% working interest in the Fort Hills oil sands mining project—for $5.5 billion (Can.) plus additional payment potential up to $600 million (Can.).

That deal, which was reached after TotalEnergies said it was exiting the Canadian oil sands market, was conditional upon operator ConocoPhillips waiving its preemptive rights on the Surmont asset (OGJ Online, Apr. 27, 2023; Sept. 29, 2022).

As a result of ConocoPhillips exercising its right, "each of the parties has the right to terminate the agreement," Suncor said in a separate release, noting it will assess the transaction "in light of this change." Suncor is operator of the Fort Hills asset with 68.76% interest. 

Low-decline asset

The asset’s low-decline status was noted by Jefferies analysts at the time of the Suncor-TotalEnergies deal in late April. At the time, the analysts said Surmont accounted for about 4% of ConocoPhillips’ total 2023 production and about 7% of its oil production, and while “Surmont is an attractive low decline asset, [ConocoPhillips] does have deep inventory of low decline assets globally (Alaska, Qatar, APLNG).”

In its May 26 release regarding its decision to exercise its preemption right, ConocoPhillips chairman and chief executive officer Ryan Lance said of the asset: “Long-life, low sustaining capital assets like Surmont play an important role in our deep, durable and diverse low cost of supply portfolio.”

As 100% owner and operator, he continued, the company will work to “further optimize the asset while progressing toward our overall interim and long-term emissions intensity objectives,” noting the operator remains on track to achieve its accelerated greenhouse gas (GHG) intensity reduction target of 50-60% by 2030, using a 2016 baseline.

The operator said Surmont’s GHG emissions intensity has declined by about 20% since 2016.

ConocoPhillips’ deal with TotalEnergies is expected to close in second-half 2023, with an effective date of Apr. 1, 2023, subject to regulatory approvals and other customary closing conditions.