December 17, 2010 / 8:39 AM / 8 years ago

UPDATE 4-Total, Suncor in C$1.75 bln Canada oil sands deal

* Total, Suncor to pool investments in three projects

* Total to pay C$1.75 bln for stakes, past project costs

* Canadian tar rush reflects a quest for new oil supplies (Adds executive comments)

By Jeffrey Jones and Marie Maitre

CALGARY/PARIS, Dec 17 (Reuters) - France’s Total (TOTF.PA) and Suncor Energy Inc (SU.TO) of Canada said on Friday they will kick-start development of three multibillion-dollar oil sands projects in the latest in a flurry of deals that points to a renewed boom in the vast resources of northern Alberta.

Under the deal, the French oil major will spend C$1.75 billion ($1.73 billion) and the companies will trade interests in projects that have been stalled since the financial crisis.

It expands the dominance of Suncor, already Canada’s largest oil company, in its main focus area, the Alberta oil sands, the richest source of crude outside the Middle East and a target of billions of dollars in foreign investment.

The joint venture includes the Fort Hills, Joslyn and Voyageur projects, and represents a change in style for Suncor, which also announced a C$6.7 billion 2011 spending budget.

“Suncor has been kind of a ‘100 percent in the oil sands go it alone’ kind of company so this is kind of a directional shift,” Chief Executive Rick George said.

George said it will help both companies manage the risks of cost overruns, as inflation creeps back into the sector with numerous operators rekindling plans over the past two years and new players entering the sector.

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Factbox: Total’s oil sands investments [ID:nN17107362]

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The agreement prompted Total to scrap plans for a 295,000 barrel a day oil sands upgrader near Edmonton, Alberta, as its processing needs will be met with Suncor’s Voyageur upgrader plan, Total Canada President Jean-Michel Gires told Reuters.

The deal further consolidates the industry after Suncor bought Petro-Canada in 2009, allowing better coordination of labor and materials, George said in an interview.

“This is good in terms of an effort to develop these resources in a way that at least gives us a chance to minimize its impact,” he said.

Industry officials have said that developers have learned to avoid the runaway inflation that plagued the sector earlier this decade, with the labor supply stretched thin as several of the complex and expensive projects went forward at once.

However, with a slew of new ventures such as Suncor-Total, the industry could find itself back in similar conditions, Canaccord Genuity analyst Phil Skolnick said.

Suncor shares were off 0.7 percent at C$36.24 on the Toronto Stock Exchange on Friday. In Paris, Total rose 0.3 percent to 39.77 euros.

BILLIONS INVESTED

Total has been an active oil sands investor since 2003. Since then, companies from China, South Korea, Norway and Thailand have shelled out billions of dollars for assets, with 2010 representing a major resumption in activity.

Total boosted its interests this year with a C$1.5 billion takeover of UTS Energy, which gave it a 20 percent stake in Fort Hills, a project on hold since 2008 after cost estimates soared to C$24 billion.

George said he expects the collaboration will help cut the costs of the mining development.

In the deal, Total will buy 19.2 percent of Suncor’s interest in the development, raising its stake to 39.2 percent. Suncor, with a 40.8 percent stake, will remain operator.

Suncor will get 36.75 percent of Total’s interest in Joslyn, where Total will stay operator and keep 38.25 percent.

Total will assume 49 percent of the Voyageur project near Fort McMurray, Alberta, an C$11.6 billion upgrading plant where construction stopped two years ago.

Fort Hills and Voyageur will be developed at the same time so that both start producing in 2016, the companies said.

The moves came as Suncor announced a 10-year growth strategy, including plans to increase oil sands production by 10 percent annually [ID:nSGE6BG034]. In its 2011 budget, it will spend C$2.8 billion on growth projects and C$3.9 billion on sustaining current operations.

Total also has an interest in the Surmont project, with ConocoPhillips (COP.N), and in the Northern Lights project through its 2008 acquisition of Synenco Energy.

Suncor is a pioneer in oil sands projects, and currently has a capacity of more than 350,000 barrels a day through its base mining operations and the expansion of its Firebag steam-driven development. It has a 12 percent stake in the Syncrude Canada development, which can also pump 350,000 bpd.

($1=$1.01 Canadian)

$1=0.7513 euro Editing by Rob Wilson and Peter Galloway

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