ConocoPhillips is exercising its preemption right to purchase the remaining 50% interest in Surmont from TotalEnergies EP Canada Ltd. for approximately $3 billion (CAD$4 billion), subject to customary adjustments, as well as contingent payments of up to approximately $325 million (CAD$440 million). ConocoPhillips currently holds a 50% interest as operator of Surmont and will own 100% upon closing. This transaction is subject to regulatory approvals and other customary closing conditions.
"Today’s announcement reflects our ongoing commitment to enhance our returns-focused value proposition, improving our ROCE, lowering our free cash flow breakeven and further supporting our $11 billion planned return of capital in 2023,” said Ryan Lance, chairman and chief executive officer. “Long-life, low sustaining capital assets like Surmont play an important role in our deep, durable and diverse low cost of supply portfolio. Upon close, we look forward to leveraging our position as 100% owner and operator of Surmont to further optimize the asset while progressing toward our overall interim and long-term emissions intensity objectives. We will remain on track to achieve our previously announced accelerated GHG intensity reduction target of 50-60% by 2030, using a 2016 baseline.”
The transaction is expected to close in the second half of 2023, with an effective date of April 1, 2023, and will be funded from either cash, short- and medium-term financing, or a combination of both. The transaction is subject to contingent payments for a five-year term of up to approximately $325 million (CAD$440 million) representing $2 million (CAD$2.7 million) for every dollar that WCS pricing exceeds $52 per barrel during the month, subject to certain production targets being achieved. Additionally, the transaction is structured as an asset purchase and the tax pools will be commensurate with the purchase price of the asset, including associated contingent payments.
Based on $60 WTI, the transaction will add approximately $600 million of annual free cash flow in 2024, inclusive of approximately $100 million of annual capex for maintenance and pad development costs. Since 2016, Surmont's GHG emissions intensity has declined by about 20%, and ConocoPhillips has plans for future emissions reduction by applying both current and new technology. ConocoPhillips is also a member of the Pathways Alliance, working to advance carbon capture and storage in Alberta.