DBRS Comments on Impact of Sanctioning of Fort Hills Project on Total

DBRS notes that on October 30, 2013, Total E&P Canada Ltd., a subsidiary of Total S.A. (Total; Commercial Paper rated R-1 (middle), Stable), together with its joint venture co-owners Suncor Energy Inc. (Suncor; rated A (low), Stable) and Teck Resources Limited (Teck; rated BBB, Stable), announced that it has voted to proceed with the Fort Hills oil sands mining project (the Project). DBRS expects the Project to have a minimal impact on Total’s credit quality, given the Project’s relative size to Total’s total production. Total’s share of the Project’s production (estimated at approximately 70,560 barrels per day (b/d) at full capacity) represents only approximately 3% of its pro forma production. In addition, annual capital expenditure (capex) for the Project is only approximately 5% of Total’s annual capex budget. As a result, DBRS views the announcement as non-material to Total.

The Project has an estimated capital investment of $13.5 billion ($4.9 billion net to Total). Total holds a 39.2% interest in the Project, while Suncor and Teck own 40.8% and 20%, respectively. First production from the Project is expected in the fourth quarter of 2017 and will likely reach 90% of its planned production capacity of 180,000 b/d within 12 months. At the current planned production rate, the mine life is expected to be over 50 years.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Rating Companies in the Oil and Gas Industry (July 2013), which can be found on our website under Methodologies.