New kid SilverBirch Energy digging in

Gary Park

For Petroleum News

Consolidation is sweeping the Alberta oil sands as opportunities fade, but hunting for a buyer is not the immediate priority of SilverBirch Energy, says the company’s chief executive officer, Howard Lutley.

The newly minted company, which started trading on the TSX Venture Exchange Oct. 7, was created from assets left over after the completed C$1.5 billion sale of UTS Energy to French oil major Total, which was interested only in UTS’s 20 percent stake in Suncor Energy’s postponed Fort Hills project.

SilverBirch, which retains the expertise that powered UTS, and was left with an estimated net 891 million barrels of mineable resources, is in a joint venture with Canadian mining giant Teck Resources to develop projects at its Frontier and Equinox leases, which could have combined output of 210,000 barrels per day by 2020.

Its portfolio has also recently been expanded by a discovery in the nearby Audet region, although no estimates of resources have been released.

Lutley told an energy seminar in Calgary that the UTS-Total deal was proof of the consolidation trend in the industry.

“As time progresses the number of small independent operators is diminishing,” he said. “In fact, our 50 percent interest in the Frontier-Equinox projects are the only large-scale mining assets that are not owned by major players. We believe this is very significant for us as we advance this project through the engineering and regulatory process.”

He noted that major international companies inject capital and expertise to the industry and bring to the table a wealth of experience in dealing with environmental issues that is vital as pressure to improve the oil sands’ environmental performance continues to rise.

Lutley said there is already a unique emphasis in the oil sands on collaboration among companies and between industry and government in developing new technologies to improve industry performance on the handling of toxic wastes and reducing greenhouse gas emissions.

The current timetable calls for regulatory applications to be filed in 2011, targeting approvals in 2013-14, and the drilling of 40 to 50 wells starting in February.

No desire for a quick sale

“Our objective is to move the (Frontier and Equinox) projects to the point where we can build something and that’s our No. 1 focus,” he said, while acknowledging SilverBirch does not have the financial strength to tackle a full-scale mining project, even as a 50-50 partner.

Lutley, who is closely following the thermal-recovery sector of the oil sands, said SilverBirch has the “best of both worlds,” with the Frontier mining project “in the hopper” along with the flexibility of building Equinox as an in-situ project in bite-size pieces.

Greg Boland, co-founder of West Face Capital, which owns 17 percent of SilverBirch (the other major shareholder is Children’s Investment Fund Management of the United Kingdom with 19 percent), said the priority is delineating and maximizing the value of the company’s asset base.

Randy Ollenberger, an analyst with BMO Nesbitt Burns, said the reality for SilverBirch is that it will have to raise equity or sell off pieces of the company to fund development.

Peter Ogden, an analyst with National Bank Financial, said “all of the options are open” when SilverBirch is expected to have a market value of only about C$250 million.