Cenovus Energy Inc. says it has signed an agreement to buy the 50 per cent stake in the Sunrise oilsands project in northern Alberta that it does not already own from BP. Cenovus Energy logos are on display at the Global Energy Show in Calgary, Alta., Tuesday, June 7, 2022.THE CANADIAN PRESS/Jeff McIntosh

BP exits oilsands to focus on offshore; will sell Sunrise stake to Cenovus

CALGARY — British energy giant BP is exiting the Alberta oilsands to focus on offshore oil development instead.

The company announced Monday a deal to sell its 50 per cent stake in the Sunrise oilsands project in northern Alberta to Cenovus Energy Inc.

Under the agreement, Calgary-based Cenovus will pay $600 million in cash plus a variable payment with a maximum cumulative value of $600 million expiring after two years. Cenovus will also give BP its 35 per cent stake in the undeveloped Bay du Nord project in offshore Newfoundland and Labrador.

The transaction means BP will no longer have interests in Canadian oilsands production and will shift its focus to future potential offshore growth. The company currently holds an interest in six exploration licenses 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 player to depart the Canadian oilsands, following on the heels of major companies such as Norwegian oil giant Equinor ASA — formerly Statoil — which completed its exit from the region last year when it sold its 18.8 per cent stake in Athabasca Oil Corp.

Other European and U.S. companies such as Royal Dutch Shell, Statoil, Total, ConocoPhillips, Marathon Oil and Murphy Oil have reduced or eliminated their exposure to the oilsands since 2015, when oil prices crashed and investor concerns about the carbon intensity of oilsands product began to intensify.

But in 2022, oil prices are surging and shares in Canadian oilsands producers are once again flying high. Cenovus Energy’s stock price is up more than 140 per cent year-over-year against the backdrop of the war in Ukraine and global concerns about energy supply.

In a news release, Cenovus said full ownership of the Sunrise oilsands project will enhance the company’s “core strength” in the oilsands. Cenovus already owned 50 per cent 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,” said Cenovus chief executive Alex Pourbaix in the release. “By applying Cenovus’s 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 the current 50,000 barrels per day to 60,000 barrels per day. The acquisition has an effective date of May 1, 2022 and is anticipated to close in the third quarter of this year.

The deal is in line with Cenovus’ strategy of consolidating and optimizing oilsands assets, said Scotiabank analyst Jason Bouvier in a note. It also gets Cenovus out of the Bay du Nord project, which was also part of the company’s 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, N.L. The project was approved in April, by Environment and Climate Change Minister Steven Guilbeault, though a final investment decision by Equinor and its partners has not yet been made.

This report by The Canadian Press was first published June 13, 2022.

Companies in this story: (TSX:CVE)

Amanda Stephenson, The Canadian Press