Total SA, Europe’s third-biggest oil producer, bought stakes in oil-sands developments in Alberta from Suncor Energy Inc. for C$1.75 billion ($1.74 billion), as it seeks out unconventional crude sources to sustain output.
The companies formed a “strategic alliance” for the Fort Hills, Joslyn and Voyageur projects in the Athabasca region of the province where they will pool their interests, Paris-based Total said today. The two agreed to work to bring Fort Hills and Voyageur into production in early 2016.
“Oil sands are an attractive resource, offering long-term, stable production,” Oswald Clint, a London-based analyst for Sanford C. Bernstein & Co. with an “outperform” rating on Total, wrote today in a note to clients. Total is poised to surpass Royal Dutch Shell Plc as the largest European producer from Canada’s oil sands within the decade, he said.
The French company, which this year raised production from a nine-year low, plans to spend as much as C$20 billion in Athabasca to produce more than 200,000 barrels a day by 2020. The ecological cost of extracting oil from western Canada’s tar-soaked bogs has drawn criticism as the production generates as much as 40 percent more carbon-dioxide emissions than conventional wells, according to environmental group Natural Resources Defense Council.
Total fell 13 cents to 39.77 euros at 5:39 p.m. in Paris. Suncor fell 18 cents to C$36.30 at 4 p.m. on the Toronto Stock Exchange.
Total will buy 19.2 percent of Calgary-based Suncor’s stake in the Fort Hills project, bringing its interest to 39.2 percent, as well as 49 percent in Suncor’s Voyageur upgrader development near Fort McMurray. The plant will be able to process 200,000 barrels a day of products including bitumen from Total’s Fort Hills and Joslyn output.
In return, Suncor will take 36.75 percent of the French company’s interest in Joslyn, which has a production potential of 200,000 barrels a day, according to a statement.
Regulators must approve the agreement, Total said.
The companies agreed to begin output from Fort Hills and Voyageur in early 2016, Total said. Production from the Joslyn North mine, estimated at 100,000 barrels a day, will start in 2017 or 2018.
“This collaboration will allow us to strengthen our portfolio of Canadian oil-sands assets, opening new opportunities to develop this strategically important energy resource,” Yves-Louis Darricarrere, head of exploration and production at Total, said in the statement.
Biggest Crude Reserves
Total in July announced the purchase of Calgary-based UTS Energy Corp., giving it a 20 percent stake in the Fort Hills mining project in the Athabasca region. The open-pit mine contains about 3.4 billion barrels of bitumen and may produce about 160,000 barrels a day by 2016.
Alberta’s oil sands contain the biggest crude reserves outside of Saudi Arabia, according to government estimates.
“We are trying to build our position in Canada based on the long-term bet” that energy demand will outstrip supply, Jean-Michel Gires, Total’s president of Canadian exploration and production, said in an interview in September.
Crude-oil prices need to be at least $80 a barrel to justify investments in projects in Alberta, Total’s Chief Executive Officer Christophe de Margerie has said.
Cash from the sale and the Canadian company’s reduced costs for the upgrader will enable doubling production to the equivalent of more than 1 million barrels of oil a day by 2020, Suncor Chief Executive Officer Rick George said on a conference call today.
Suncor’s Capital Spending
Total’s cash and money from operations will pay for C$6.7 billion of planned capital spending next year, George said. That’s a 22 percent increase from a 2010 spending estimate by the company on Nov. 4.
With the benchmark North American crude oil price at $85, Suncor expects cash flow to cover most of its planned spending, as much as C$9.5 billion, from 2012 to 2015, Chief Financial Officer Bart Demosky said on the call.
Crude futures in New York trading rose above $90 last week, the highest price in more than two years.
Total’s production growth this year, after output touched a nine-year low in 2009, came from starting fields in Nigeria, the Gulf of Mexico, Angola and Norway, as well as liquefied natural-gas projects in Yemen and Qatar. The company expects production to be little changed next year because of a lull in startups and has pledged to explore more aggressively in frontier regions to boost output.