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French giant Total makes oil sands grab UTS Energy, junior partner in Petro-Canada’s Fort Hills project, target of $617 million bid; Fort Hills UTS’ main asset Gary Park For Petroleum News
Total has launched a surprise hostile bid to take out a junior partner in Petro-Canada’s Fort Hills oil sands project just a month after speculation had the French super major planning a cash takeover offer for Nexen.
The company said its Canadian subsidiary is ready to pay C$617 million for UTS Energy, whose main asset is a 20 percent stake in the stalled Fort Hills venture.
The C$1.30 per-share offer was C47 cents a share above UTS’s trading level when announced Jan. 27, is open for 60 days and is conditional on Total receiving at least 66.67 percent of UTS shares.
Total already has majority interests in the Joslyn oil sands project, after buying Deer Creek Energy for C$1.7 billion in 2005, and 60 percent of the Northern Lights project, following its acquisition of Synenco Energy last year for C$530 million, with the balance held by a subsidiary of China’s Sinopec.
UTS conceded challenge UTS has openly conceded it faces a severe financial challenge, compounded last October when it was disclosed that cost estimates for the Fort Hills mine and upgrader had soared to C$25 billion, forcing the junior, which has no cash flow, to raise billions of dollars to cover its share of development costs.
Although Fort Hills has effectively been mothballed, Total said a final decision to resume work on the project is expected in 2010, with production starting as early as 2013.
In addition to its Fort Hills holding, UTS has a 50 percent working interest in more than 300,000 acres of prospective leases and holds an estimated 2.1 billion barrels of bitumen resources.
Fort Hills third partner is mining giant Teck Cominco which faces its own struggle after acquiring Fording Canadian Coal Trust’s assets last year for US$14 billion — a deal completed just as commodity prices were collapsing — adding US$9.8 billion to its debt load and prompting a credit rating downgrade.
Teck said in early January it was cutting 1,400 jobs and warned more might follow.
It took an initial 15 percent stake in Fort Hills in 2005 for C$475 million, but analysts have questioned whether it can remain in the oil sands given the magnitude of its other challenges.
Analyst surprised William Lacey, an analyst at FirstEnergy Capital, told reporters he was surprised by what he called Total’s “opportunistic” bid, suggesting the company was “trying to capitalize on a very weak market (by) paying almost nothing for an enormous resource.”
He said Total appears to be taking a long-term view of the oil sands, given its takeover of Synenco, but suggested counter bids for UTS are likely, including a possible offer from Petro-Canada.
Randy Ollenberger, a BMO Nesbitt Burns analyst, said it is clear that Total expects Fort Hills to go ahead and may also be counting on synergies between Fort Hills and its separate plans to build a bitumen upgrader capable of processing 200,000 bpd, given that the Fort Hills partners are wavering on their own upgrader plans.
UTS Chief Executive Officer Will Roach said there had been no prior discussions with Total, but the offer would receive “full and fair consideration.”
A spokesman for Petro-Canada said that having a major international company as a partner would only be beneficial, but he could not say whether Total’s presence would speed up corporate approval of Fort Hills.
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