Total’s subsidiary Total E&P Canada Ltd. and Suncor Energy Inc. have signed several agreements to form a strategic oil sands alliance encompassing the Suncor-operated Fort Hills mining project, the Total-operated Joslyn mining project, and the Suncor-operated Voyageur upgrader project. All three assets are located in the Athabasca region of the province of Alberta.
Under the alliance, the companies will pool their combined interests in these projects, with the respective operator holding 51% and the other partner 49%.
The agreements comprise four significant and related transactions:
First, Total is acquiring 19.2% of Suncor’s interest in the Fort Hills project. Taking into account Total’s acquisition of UTS, finalized in October 2010, the company will have an overall 39.2% interest in Fort Hills. Suncor, as operator, will hold 40.85. Teck Resources Ltd. continues to own its 20%.
Second, Suncor is acquiring 36.75% of Total’s interest in the Joslyn project. Total, as operator, will retain a 38.25% interest in the project, with Occidental Petroleum (15%) and Inpex (10%) holding the remaining 25%.
Next, Total is also acquiring a 49% stake in the Suncor-operated Voyageur upgrader project located near Fort McMurray. The facility of which construction was suspended in 2008 will have a capacity of around 200,000 barrels per day of upgraded products and will process Total’s Fort Hills and Joslyn bitumen production. Work will resume once the front-end engineering design is updated in 2011.
As a result of the terms of these transactions and the related net balancing of the portfolio, in particular to contribute to the past costs of the Voyageur project, Total will pay Suncor slightly more than US$1.74 billion, with a value date of Jan. 1, 2011.
Suncor and Total have agreed to a joint commitment to develop Fort Hills and Voyageur in parallel so that both come on stream early 2016. The main engineering and procurement contracts for these two projects will be awarded in 2011. Both companies have also confirmed the Joslyn North Mine timetable, with production of 100,000 barrels per day commencing in 2017-2018, subject to receiving the necessary permits.
Implementation of the agreements is subject to securing necessary regulatory approvals from the government of Canada and certain other approvals. As a result of the agreements, Total will no longer proceed with the planned construction of an upgrader in Edmonton.
Total operates the Joslyn project and owned a 75% interest until now. Production potential of this mining project is currently estimated at 200,000 barrels per day, with the Joslyn North Project at 100,000 barrels per day.
Total owned a 20% interest in the Fort Hills project until now. The project will be developed in two phases. The first phase of about 164,000 barrels per day has already obtained the necessary administrative approvals.
Total also owns a 50% interest in the Surmont SAGD (Steam Assisted Gravity Drainage) project. Phase 1 production began in 2007 and currently averages 23,000 barrels per day. Phase 2 development began in January 2010, with production scheduled to start in 2015, enabling Surmont’s total production to increase to around 110,000 barrels per day. Further development phases are under study.
Total also has a 50% interest in the Northern Lights project following the 2008 acquisition of Canada’s Synenco Energy.