Canada’s premier integrated energy company Suncor Energy (SU) has made an agreement with Direct Energy to offload certain natural gas properties situated in Alberta. The value of the assets has been finalized for C$375 million ($358.5 million), with an effective date of May 1, 2010.
The properties to be divested are known as Wildcat Hills, located near Cochrane, with production capacity of approximately 80 million cubic feet of natural gas and natural gas equivalent per day.
The deal will come into effect during the fourth quarter 2010, and is subject to closing conditions and regulatory approvals.
As part of the previously-announced strategic business alignment, Suncor has sold off a number of non-core assets over the last few months. This includes the disposal of Rosevear and Pine Creek for net proceeds of C$229 million. Recently, Suncor divested some of its natural gas properties to TAQA NORTH for approximately C$285 million.
Suncor set an asset sale target of $2 billion to $4 billion in 2010. Including this deal, the company’s asset divesture program reached approximately $2.8 billion. Remaining properties that are likely to be divested in the future include some natural gas assets in Western Canada and non-core North Sea assets.
Last month, Suncor came up with impressive second quarter 2010 results, aided by additional upstream production from the Petro-Canada merger and higher crude prices. Earnings per share, excluding certain items, came in at 50 Canadian cents (48 cents), surpassing the prior-year period result of 4 Canadian cents.
Suncor’s upstream production during the quarter averaged 633,900 barrels of oil equivalent per day (Boe/d), against the prior-quarter level of 336,100 Boe/d. The natural gas business produced an average 586 million cubic feet equivalent per day (MMcfe/d), up significantly from 211 MMcfe/d in the year-ago quarter.
Suncor will benefit from the bullish outlook for the oil sector, attractive asset base allowing flexibility in reinvestment decisions and strong inventory of visible oil sands growth projects.
However, taking into account Suncor’s high debt level, operational challenges and risks related to the expansion of the oil sands operations, we remain bearish on the stock in the short run, reflected through its Zacks #3 Rank (‘Hold’).