Total to Take $1.65 Billion Loss on Canada Oil-Sands Project

Total SA, Europe’s third-biggest oil company, will book a $1.65 billion loss in the first quarter on the canceled Voyageur Upgrader project in Canada’s oil sands after selling its stake to Suncor Energy Inc.

More than $5 billion of investment in Voyageur over the next five years is “no longer justified from a strategic and economic point of view,” the Paris-based company said in a statement. The explorer will sell its 49 percent stake in the project to venture partner Suncor for $500 million.

Alberta oil sands are beset by rising labor costs and a shortage of workers as well as a discount for the price of Canadian heavy crude as U.S. oil output exceeds expectations. Suncor yesterday canceled the Voyageur venture after Chief Executive Officer Steve Williams said in December the profit margin for processing Alberta bitumen was “disappearing.”

Total’s decision to sell its stake “is the right one and made due to negative market conditions,” Oswald Clint, an analyst at Sanford C. Bernstein & Co., wrote in a report. It demonstrates “some level of capital discipline when project economics are no longer favorable.”

Total’s shares were little changed at 37.37 euros at 10:51 a.m. in Paris.

‘Long-Term Bet’

Total bought stakes in oil-sands developments in 2010 from Suncor, Canada’s largest oil producer by market value, forming a “strategic alliance” for the Fort Hills, Joslyn and Voyageur projects. At the time Jean-Michel Gires, Total’s president of Canadian exploration and production, said the explorer was taking a “long-term bet” on oil sands.

“The Fort Hills and Joslyn mining projects are not impacted by the decision to withdraw from the Voyageur project, and Total remains totally committed to playing a significant role in Canada’s future oil sands development,” Yves-Louis Darricarrere, head of upstream, said in today’s statement.

Total is operator of the Joslyn project with a 38.25 percent stake while it owns a 39.2 percent interest in the Fort Hills project. A final investment decision on Fort Hills is expected around late 2013 while Joslyn is in an “engineering review phase,” according to today’s statement.

Voyageur would have been the third upgrader at Suncor’s oil-sands site in Fort McMurray, Alberta. An upgrader converts tar-like bitumen into a light, synthetic crude oil.

Total Chief Executive Officer Christophe de Margerie has pledged to raise production from new fields and explore more aggressively for reserves to revive output growth. He has also focused on selling assets such as Total’s pipeline network in southwestern France as part of a plan to raise as much as $20 billion.

Total also had to write down the value of U.S. shale assets for 700 million euros ($894 million) after taxes in the third quarter because of the drop in natural gas prices.

The net loss of $1.65 billion on the Voyageur project will be reflected in Total’s first quarter results, it said today.

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