Suncor Energy Inc.’s buyout of Teck Resource Ltd.’s stake in the Fort Hills mine in northern Alberta will cost more than the $1-billion purchase price: the oilsands major also faces a $2.6-billion writedown on an asset with a checkered track record when it comes to safety and delivery on production targets.

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Suncor's purchase of Teck's Fort Hills share will cost more than the $1-billion price tag Back to video

Calgary-based Suncor announced Wednesday night that it had reached a deal to purchase Teck’s 21.3 per cent stake in Fort Hills. The all-cash deal effective Nov. 1 will boost Suncor’s aggregate share in the oilsands project to more than 75 per cent — with the remaining 24.6 per cent currently held by French energy major TotalEnergies SE.

The move comes at a delicate time for Suncor. The company is trying to reverse course on recent production and safety issues at its oilsands operations — including Fort Hills — that prompted the resignation of Mark Little as chief executive earlier this year.

Suncor shares dropped nearly two per cent to about $45 on the S&P/TSX composite index.

Fort Hills, an open-pit truck and shovel mine, is the country’s newest oilsands project, constructed for $17 billion with operations beginning in 2018. Since then, Fort Hills has faced significant operational challenges, including missed production targets, safety issues and increasing costs.

Production at the facility north of Fort McMurray was curtailed in 2021 after it was discovered that work was needed to stabilize a slope at the mine; the project also suffered a setback in 2019 when the provincial government imposed crude production limits in a bid to battle painful price differentials between U.S. and Canadian oil.

Despite Fort Hills’ challenges, analysts and experts said the deal advances Suncor’s long-term strategy to consolidate oilsands assets, a trajectory the company has been on since the middle of the last decade, starting with the company’s hostile-turned-friendly acquisition of rival Canadian Oil Sands Ltd. in 2016.

“This is just a continuation of that trend,” said Peter Tertzakian, chief energy economist and deputy director at ARC Financial Corp. “Consolidators benefit from their expertise in achieving economies of scale from a specialized hydrocarbon resource. Sellers benefit by shedding carbon-emitting assets that are not core to their businesses.”

Notably, the transaction marks Teck’s exit from the oilsands, as the Vancouver-based miner shifts its focus to copper and low-carbon metals. Teck has signalled for some time that it was looking to get out of the oilsands, starting with its decision to withdraw its application to build the Frontier oilsands mine in 2020.

“We’re very satisfied with the valuation achieved here and we think it’s a good deal for our shareholders,” Teck CEO Jonathan Price said on a conference call with investors on Oct. 27. “We think it improves our investability, because we know oilsands has been an overhang for us, and it’s consistent with our strategy of moving away from carbon towards green metals in the portfolio.”

Price said there remains development rights on the Frontier oilsands project, but Teck won’t be the one to execute and develop the asset: “We won’t be operators in the energy sector, nor in oilsands specifically and therefore, we will evaluate options to transact on those over time,” he said.

Suncor said in release that it has been conducting an in-depth review of the Fort Hills project and has begun a multi-year improvement initiative to optimize production. Over the next three years, Suncor said it expects five per cent lower gross production and increased operating costs per barrel as it makes improvements for the long-term.

“While the Fort Hills mine has faced challenges in the early years of the mine life, including challenges due to government directed production shut ins, I have full confidence in our current mine plan assembled with fresh external mining perspectives,” Suncor’s interim CEO Kris Smith said in a statement.

The company said it will be discussing its plans for improving Fort Hills in further detail at an investor presentation on Nov. 29.

The deal also comes as Suncor is flush with cash from recent asset sales, including its wind and solar assets in Alberta and Ontario to Canadian Utilities Ltd. for $730 million. The company also announced earlier this year that it had sold its Norway assets for $410 million and begun the sale process for its U.K. business.

“It’s a good fit for both companies,” said Ben Brunnen, founder of Verum Consulting and former vice-president of oilsands and fiscal policy at the Canadian Association of Petroleum Producers (CAPP). “While there’s definitely some room for improvement on the performance of Fort Hills, Suncor is signalling it’s taking on the strategic focus corporately to make those assets as good as they possibly can be.”

With files from Gabriel Friedman

• Email: mpotkins@postmedia.com | Twitter: mpotkins
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