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Suncor Energy Inc. (NYSE:SU) [28.501.104.01%] is shaking up the market with its share repurchase program.

Rather than just buy back its shares straight from the market, last week Suncor announced that it has negotiated to issue put options to an unnamed Canadian financial institution, giving the party the right to sell Suncor shares back to the oil sands giant at a predetermined price at some point in the future.

If that sounds strange, it’s because it is. Suncor had to get approval for it from the Toronto Stock Exchange, and the people who run Canada’s biggest stock market don’t “believe there has been an application like this for some time,” said spokesperson Carolyn Quick.

Don Boykiw, a Calgary lawyer with Osler, Hoskin & Harcourt LLP, said he hasn’t seen something similar in over a decade, citing long-ago moves by Onex Corp. (OTCPK:ONEXF) [38.750.200.52%] and Oxford Properties.

Because it’s such a unique deal, most people are scratching their heads. Jennifer Stevenson, vice-president and portfolio manager for energy with Goodman & Co., said the arrangement makes her uncomfortable, in part because Suncor’s options are relatively illiquid. “It’s negotiated and it’s a bit opaque,” she said, adding that she would rather Suncor not delve into options.

“If you’re buying the stock, just buy stock. Don’t try and be super cute about it,” she said. “I thought it was really strange.”

Suncor isn’t helping to clear the air much either. Spokesperson Sneh Seetal simply said the company likes the deal because the options “will yield some premium income, which is to our benefit.”

Just like any put option contract, the financial institution has to pay Suncor a small amount for the right to sell the shares back to the company at a pre-set price in the future. Premiums for Suncor puts currently range between $2.60 to $2.70 on a $30 June put, and 50 cents for a $26 June put.

But there’s no word on whether the company could lose out if the shares end up trading at a price lower than the option exercise price.

Yet for all the confusion, the TSX ultimately granted its approval, so it’s not as though Suncor is doing anything offside. However, this approval was needed simply because there are strict rules on share repurchase programs that limit how much a company can pay per share and how much it can buy each day and month. The ruling doesn’t mean it makes sense for Suncor.

Disclosure: None

Source: Suncor Share Buyback Deal Confuses Investors