British colossal fossil BP is exiting the Alberta tar sands/oil sands to focus on offshore oil development instead.
The company announced Monday a deal to sell its 50% stake in the Sunrise oilsands project in northern Alberta to Cenovus Energy Inc., The Canadian Press reports.
Under the agreement, Calgary-based Cenovus Energy will pay C$600 million in cash plus a variable payment of up to another $600 million expiring after two years. Cenovus will also give BP its 35% stake in the undeveloped but already deeply controversial Bay du Nord project off the coast of Newfoundland and Labrador.
The transaction means BP will no longer have any financial interest in Canadian tar sands/oil sands production and will shift its focus to future potential offshore growth. The company currently holds an interest in six exploration licences in the offshore Eastern Newfoundland Region.
“This is an important step in our plans to create a more focused, resilient, and competitive business in Canada,” BP’s senior vice-president for Gulf of Mexico and Canada Starlee Sykes said in a news release.
“Bay du Nord will add sizable acreage and a discovered resource to our existing portfolio offshore Newfoundland and Labrador.”
BP is the latest international fossil to depart the Canadian tar sands/oil sands, following on the heels of major companies such as Norwegian oil giant Equinor ASA, the state fossil formerly known as Statoil, which completed its exit from the region last year when it sold its 18.8% share of Athabasca Oil Corp.
Other European and U.S. fossils such as Royal Dutch Shell, TotalÉnergies, ConocoPhillips, Marathon Oil, and Murphy Oil have reduced or eliminated their exposure since 2015, when oil prices crashed and investor concerns about the carbon intensity of bitumen production began to intensify.
But in 2022, oil prices are surging, and shares in Canadian tar sands/oil sands producers are at least temporarily flying high. The price of Cenovus stock is up more than 140% in the last year against the backdrop of the Russia’s in Ukraine and global concerns about fossil energy supply.
In a news release, Cenovus said full ownership of the Sunrise project will enhance its “core strength” in the tar sands/oil sands. Cenovus already owned 50% of Sunrise, and has been the operator of the project since the beginning of 2021, following its acquisition of Husky Energy.
“Acquiring the remaining working interest in Sunrise enables us to fully benefit from the significant optimization opportunities available,” Cenovus CEO Alex Pourbaix said in the release. “By applying Cenovus’ advanced operating techniques, we expect to increase production at Sunrise while driving down sustaining capital, operating costs, and emissions intensity.”
Cenovus said it expects to be able to increase Sunrise’s production levels from 50,000 to 60,000 barrels per day. [Which means the plant’s emissions intensity will need to fall at least 17% if Cenovus wants to avoid an increase in absolute emissions—Ed.] The acquisition has an effective date of May 1, 2022 and is expected to close in the third quarter of this year.
The deal is in line with Cenovus’ strategy of consolidating and optimizing its tar sands/oil sands assets, Scotiabank analyst Jason Bouvier said in an investors’ note. It also gets Cenovus out of the Bay du Nord project, which was also part of its acquisition of Husky.
“This transaction offers potential upside from increasing Sunrise’s production and improving its cost structure,” he said. “Further, (Cenovus’) disposition of its Bay du Nord interest removes an undeveloped asset that may have future capital requirements.”
Bay du Nord—majority-owned by Equinor—is Canada’s first deepwater oil drilling site, located about 500 kilometres east of St. John’s, NL, CP says. The project was approved in April by Environment and Climate Change Minister Steven Guilbeault, Equinor and its partners have not yet made a final investment decision.
This report by The Canadian Press was first published June 13, 2022.