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Teck Cominco, Total dig deep into oil sands
Gary Park Petroleum News Canadian Correspondent
The price of entry to the Alberta oil sands has scaled new heights, with Canadian mining company Teck Cominco upping the ante to gain a stake in one project and France’s Total forced to raise its offer for a junior start-up company by 24 percent to fend off a rival bidder.
Vancouver-based Teck faces an initial investment of C$850 million to become a 15 percent partner with operator Petro-Canada (30 percent) and UTS Energy (55 percent) in the Fort Hills venture.
Meanwhile, Total hiked its friendly offer for Deer Creek Energy by C$300 million to C$1.67 billion to beat off a counter-proposal by an unidentified company.
Ending a prolonged search that reportedly involved several companies Petro-Canada and UTS settled on Teck to provide the mining skill needed to extract 2.8 billion barrels of raw bitumen over the next 40 years to keep Fort Hills operating at 100,000 barrels per day, possibly expanding to 190,000 bpd. Teck had hoped for a larger chunk Teck Chief Executive Officer Don Lindsay, who earlier this year said a 10 percent stake was “too small for us,” conceded Sept. 6 that he had hoped to land a larger chunk than 15 percent.
But he is hopeful that having established an oil sands division Teck will be able to “generate other opportunities,” having been “approached by several players in the oil sands sector, both big and small.”
Gaining a role in Fort Hills will require Teck to spend C$250 million for a 10 percent share, cover C$225 million of UTS Energy’s expenditures to add another 5 percent, and contribute C$375 million to the first phase development.
As a result it will pay 34 percent of project costs up to C$2.5 billion and cover its 15 percent holding after that.
Lindsay said Teck has no desire to embark on oil exploration or other aspects of the energy business.
Fort Hills “from our point of view, is a mining project; reserves are established … we’re leveraging our core mining strengths.”
As well as being consistent with a diversification strategy, the oil sands are a “natural hedge on the energy we use as a company,” he said.
Lindsay described the project as “equivalent to the largest base-metal mining operations in the world,” involving the extraction of raw bitumen from a total resource of 4.8 billion barrels of bitumen. Total had to increase bid Teck’s high-priced investment came just three days after Total had to round up another C$300 million to keep alive its bid to acquire Deer Creek, increasing its offer by 24 percent to C$1.67 billion.
The French company boosted its per-share bid by C$6 to C$31 and must now wait until Sept. 13 to see if any counter-offers surface.
Deer Creek Chief Executive Officer Glen Schmidt would not name the mystery bidder or comment on whether it could further stoke the bidding war.
He said his company acted appropriately in accepting Total’s initial Aug. 3 offer, which was 45 percent above Deer Creek’s average trading price for 20 days prior to July 29, and included a right-to-match clause to protect the interests of shareholders.
With EnerMark Income Fund as a 16 percent partner, Deer Creek is spearheading the Joslyn project, which plans to develop a 2 billion barrel lease by growing in stages over 15 years to 240,000 bpd.
Total has signaled its determination to become a possible 500,000 bpd oil sands participant, having already secured 50 percent of the 100,000 bpd Surmont project by ConocoPhillips Canada.
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