Teck and Suncor take bigger stake in Alberta oil sands project

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The Fort Hills oil sands project is located 90 km north of Fort McMurray, Alberta. Source: Suncor Energy Inc.

Teck Resources Ltd. [TECK.B-TSX; TECK-NYSE] and Suncor Energy Inc. [SU-TSX] are taking a bigger stake in the Fort Hills oil sands project in Alberta, Teck said in a progress update. With an expected mine life in excess of 50 years, the Fort Hills oil sands project in the Athabasca region of Alberta is considered one of Western Canada’s best undeveloped oil sands assets. It is located 90 km north of Fort McMurray. The partners announced that they were proceeding with construction in October 2013.

At that time, Teck President and CEO Don Lindsay said Fort Hills, with the company’s other oil sands assets, was part of a new energy division that was expected to create value, significant cash flow, and diversification for Teck’s business for decades to come. Fort Hills has an estimated contingent resource of 3.3 billion barrels of bitumen.

When the decision to proceed to construction was announced, Teck’s portion of the fully-escalated capital investment in Fort Hills from the date of project sanction was estimated at $2.94 billion over four years, including an earn-in commitment of $240 million. That was when Teck held an interest of only 20%. In the latest update, Teck said Suncor, as operator of the Fort Hills Energy Ltd. Partnership, has confirmed that during 2017, the mine, primary extraction, utilities and froth assets were commissioned. More than 80% of the Fort Hills plant is now operational and has safely run at full capacity through the test runs over the past four months.

All three secondary extraction trains are mechanically complete with the first train in its final commissioning stage. First oil is expected in mid-January. The second and third trains are currently being insulated and expected to start in the first half of 2018, as planned. Fort Hills remains on track to reach 90% of planned production capacity of 180,000 barrels per day of bitumen by the end of 2018.

Meanwhile, Teck said the Fort Hills partners have resolved a previously announced commercial dispute. Suncor and Teck have each acquired an additional working interest in the Fort Hills project from Total E&P Canada. Suncor’s share of the project has increased to 53.06% from 50.8%. Teck’s share has also increased to 20.89% from 20%. Total’s share has decreased to 26.05% from 29.2%. Suncor and Teck have funded an increased share of the project capital in amounts of $300 million and $120 million respectively in keeping with the additional working interests, which may be adjusted in accordance with the terms of the Fort Hills partnership agreement, as amended, based on the parties’ respective contributions to the project costs.

Teck is a diversified mining company with interests in such key metals as copper, zinc and coal. In addition to Fort Hills, the company’s energy division also includes a 100% interest in the Frontier oil sands project, as well as other interests in the Athabasca region. The Frontier Project, located 110 km south of Fort Chipewyan in northeastern Alberta, is currently moving through the joint provincial-federal regulatory review process.

On Thursday January 4, Teck shares advanced 0.69% or $0.23 to $33.60 in early trading.

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