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All is not quiet on the oil sands front Total’s hostile bid for UTS seizes attention; unclear whether it is ‘final and best’ offer; host of other proponents gear up Gary Park For Petroleum News
The slowdown in Canadian oil sands activity shouldn’t be mistaken for nothing taking place.
While some companies take a breather to reconsider future moves, there’s also a persistent buzz as the sector prepares for what is generally expected to be its eventual recovery.
The transfixing event over recent weeks has been a heated tug of war over startup company UTS Energy.
But it’s only one of several events that have contributed to a rise of about 10 percent by energy listings on the Toronto Stock Exchange this year and maneuvering by companies to keep prospective investors awake.
For Total, the pattern of its hostile bid for UTS has become all too familiar.
The French major’s opportunistic attempt to corral the junior company is starting to sound like a replay of its eventual success in 2005 when it bought out Deer Creek Energy and took control of the Joslyn project.
That started out with a scorned offer of C$20.50 a share and rose in two stages to the final price of C$31 after Royal Dutch Shell entered the contest.
This time, Total started out at C$1.30, then hiked its all-cash offer for UTS to C$1.70, still well short of the targeted range set by some analysts of C$2.10 to C$2.25, although there is a feeling within the investment community that Total will this time stick with its extended deadline of April 27 for tendering shares.
Some ambiguity Michael Borrell, president of Total’s Canadian unit, said his company does not “see a scenario where we would increase further this offer,” although he somewhat ambiguously told the Calgary Herald his remarks should not be interpreted as the final offer.
In an interview with the Globe and Mail he refused to classify the latest bid as Total’s “best and final” offer.
Tristone Capital analyst Chris Feltin said the revised bid of C$830 million was not a surprise for his firm.
“Our conviction of this happening again is not as strong,” he wrote to clients.
William Lacey, an analyst with FirstEnergy Capital, said there is “still the potential for Total to revise its bid again.”
The response from UTS officials and its largest shareholders has been angry and unyielding.
They have accused Total of making an offer that is less than the value of cash UTS has on hand and the value of other undeveloped oil sands properties, or rising oil prices.
UTS Chairman Dennis Sharp said Total’s revised bid “in no way reflects improving industry fundamentals.”
Total plans investments Total, which has indicated it plans to invest C$15 billion to C$20 billion over the next decade in the oil sands assets it already owns, sees no reason to raise an offer critics have called an “insult.”
Borrell said the UTS assets, notably the 20 percent stake in Petro-Canada’s Fort Hills project, are “not a key or critical element to the long-term strategy that we have in the oil sands. Fort Hills would be a nice addition, but not an essential addition.”
He said shareholders have the choice of tendering to the current offer by April 27, or watching Total be “unsuccessful” and if that happens “I’d just look at where the (UTS) share price was trading prior to this process starting.”
Greg Boland, chief executive officer of West Face Capital, which holds a 13 percent interest, said UTS is a “very strategic asset for Total, without which they have very few options in the oil sands, as most of their other projects have been delayed.”
In addition to Fort Hills, UTS is a joint-venture partner with zinc miner Teck Cominco in the Frontier and Equinox projects, tentatively planned to yield 210,000 barrels per day from combined contingent resources of 1.88 billion barrels. As well, they share the Lease 421 area, where 49 of 59 drill holes have “encountered rich oil sands,” with resources present in more than 15,000 acres.
Total has challenges Total faces some challenges in other projects, including its 74 percent stake in the planned C$9 billion Joslyn project, targeting an initial 100,000 bpd.
It has delayed a corporate decision until 2010 and suspended in-situ development, indicating it is prepared to mothball or remove assets from the property.
The Mikisew Cree First Nation, whose land is in the area of the Joslyn lease, has raised concerns with a joint environmental review panel over what it says is Total’s plan to amend its application in a way that increases the prospect of “more toxic lakes in the area. … We suspect that an entirely new set of applications may be required.”
Total has also confused observers by selling 15 percent of its Northern Lights project to China’s Sinopec for an undisclosed sum, leaving each company with a 50 percent interest.
As well, Total is having problems shaking off a continuing court battle stemming from its Deer Creek acquisition.
In a new filing with an Alberta appeals court, New York hedge fund Paulson & Co. has asked for a new trial after losing its initial argument that Total did not pay a fair price for its 12 percent stake — a claim Total flatly dismisses.
In other oil sands action:
Tamarack still viable Ivanhoe Energy said its Tamarack project remains economically viable even with oil at US$45 per barrel, using its proprietary heavy-oil upgrading technology, which allows thick heavy oil to be upgraded into light oil on site instead of having to transport it to a refinery or building a costly upgrader.
It is now seeking strategic partners to help finance all of its projects after an independent evaluation gave a best-estimate for its Tamarack contingent resources of 441 million barrels of bitumen, up 81 percent since it acquired the asset from Talisman Energy last year for C$90 million. Based on those numbers, the project ultimately would be capable of producing 50,000 bpd for more than 30 years, Ivanhoe said.
The block adjoins leases held by ExxonMobil, Laricina Energy and E-T Energy.
The Vancouver-based company is hoping to file a regulatory application for a multiphase integrated project after a drilling program is completed in 2010.
Tristone Capital analyst Chris Feltin expects Ivanhoe will sign a deal with an Asian oil company, with producers in China, Japan, Korea and Taiwan the likeliest candidates.
‘Interesting’ time for investment David Krieger, managing director of the global private equity firm Warburg Pincus, told an oil sands conference earlier this year that the economic climate makes this an “interesting” time to invest in the oil sands.
Over the past five years, the company has invested C$150 million and is the largest shareholder in MEG Energy, a startup company that has plans to produce an initial 25,000 bpd in northeastern Alberta.
He said the downturn in oil prices and the financing concerns create an appearance that oil sands companies are “trading as if they had significantly higher levels of risk than they do simply because of the current economic environment.
“We think the market may be undervaluing the optionality of having a 40-year reserve life. These are scarce resources as we all know,” Krieger said.
BP looking at options BP is examining a range of options to advance the 200,000 bpd Sunrise project with partner Husky Energy, including integrating carbon capture and storage to reduce the environmental impact, BP Chairman Peter Sutherland told the annual meeting of shareholders.
The supermajor said two months ago it was slowing down Sunrise because it expected costs to come down during the pullback from oil sands spending.
Sutherland assured an investor that BP is “still committed” to Sunrise, although he cautioned the project will “take considerable time to bring to fruition.”
Shell to file Royal Dutch Shell said it plans to use steam-drive technology rather than the cyclic steam stimulation it has been testing over several years at its proposed 80,000 bpd Carmon Creek bitumen operation in northwestern Alberta.
The company is now working towards filing a new regulatory application by the end of 2009 and expects that process will take at least 18 months, allowing an investment decision in 2011 and a production startup after 2014.
The shift in technology to vertical wells, although it will require more steam, should raise the recovery of bitumen in place to 50 percent from about 20 percent with horizontal cyclic steam stimulation wells, a spokeswoman said.
Imperial Kearl decision Imperial Oil expects to decide within the next two months whether to proceed with its C$8 billion Kearl project, having missed a late March target date while it resolves some issues relating to financial commitments.
It is the only major to increase oil sands capital spending this year and has been advertising career openings for Kearl, a joint-venture with its sister company ExxonMobil Canada.
Kearl is planned to come on stream at 100,000 bpd and grow to 300,000 bpd.
Enerplus halting work Enerplus Resources Fund is halting work on its 10,000 bpd Kirby project, initially scheduled for the first quarter of 2012, blaming “current cost structures, commodity price environment and our cost of capital.”
It will wrap up current activities and “position the project to be re-evaluated and potentially re-initiated at a later date.”
An updated resource estimate will be finished this summer based on new seismic data. The first phase development was expected to draw from contingent resources of 400 million barrels.
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