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Oil sands newcomers UTS and OPTI revive hopes
Gary Park Petroleum News Calgary Correspondent
The Conference Board of Canada delivered what it called a “unique” economic forecast last month, declaring that the Alberta oil sands will show the way to Canada’s other energy resources over the next decade.
The report came at a time when anxiety was at a high level, following another massive cost overrun and a one-year delay in bringing a Syncrude Canada expansion on line.
But the last week has seen two junior companies, who are hoping to make their debut in the oil sands, raise the spirits of those who feared potential investors in a 300 billion-barrel resource might be getting cold feet because of the sector’s shaky trends.
OPTI Canada, created by Ormat Industries, an Israeli-based power and technology company, completed a C$1.8 billion financing to cover its share of the 50-50 joint venture with Nexen to build the C$3.4 billion Long Lake project.
UTS Energy, frustrated with “indefinite deferral,” announced an offer of C$178 million to buy out its 78 percent majority partner, TrueNorth Energy, in the Fort Hills project. OPTI raises more than C$1 billion OPTI President and Chief Executive Officer Sid Dykstra said in an April 15 statement that OPTI in the past month has raised more than C$1 billion in new equity and sold C$800 million in debt to meet its financing obligations for the fourth oil sands project in Alberta.
Dykstra said OPTI now has shareholders in Canada, the United States, Europe and Australia and “most importantly, is fully funded for its share of the Long Lake project.”
As OPTI entered its financing phase there was a spreading cloud over the oil sands sector, stemming from the announcement by Syncrude Canada that an expansion of its oil sands plant had soared by C$2.1 billion to C$7.8 billion and completion had fallen a year behind schedule.
But OPTI showed no hesitation, plunging ahead with raising C$750 million from a private placement of equity, surpassing the upper limit of C$700 million it had been targeting, and selling debt.
Then, for its initial public offering, OPTI issued 13.7 million shares at C$22 per share, compared with the share price of C$18.75 for the private placement that closed March 15.
The lead underwriters for the IPO were TD Securities, Scotia Capital and RBC Capital Markets on behalf of a syndicate of 10 underwriters. First phase of Long Lake 72,000 bpd The first phase of Long Lake consists of 72,000 barrels per day of production, integrating steam assisted gravity drainage, integrated with an upgrading facility that will apply OPTI’s proprietary process and commercially available technology.
The configuration is designed to significantly reduce the exposure to and the need to purchase natural gas and is expected to produce 58,500 bpd of products, primarily 39 degree API premium sweet crude, with a very low sulfur content, making it a desirable refinery feed stock.
Construction is set to start in mid 2004, with steam assisted gravity drainage bitumen production in 2006 and the upgrader coming on stream in 2007. If all goes well, Long Lake will double its volumes by 2011.
Dykstra has predicted that the new processing system should see Long Lake’s operating costs undercut existing integrated projects by C$5-$10 a barrel. The 50,000-acre lease has an estimated 1.5 billion barrels of recoverable bitumen. Fort Hills to be rescoped UTS Energy cooled its heels for 15 months after TrueNorth, an affiliate of Koch Industries, stopped work on the planned C$3.5 billion Fort Hills project, blaming market uncertainties and a risk analysis.
But UTS was not prepared to walk away, after participating in C$178 million worth of exploratory drilling that boosted recoverable reserves by 400 million barrels to 2.8 billion barrels, project engineering and obtaining regulatory approval from the Alberta Energy and Utilities Board in October 2002.
Dennis Sharp, UTS chairman and chief executive officer, said last summer he was confident Fort Hills could be rescoped to improve its economics. On April 19, he said UTS is determined to be the catalyst for development of Fort Hills “utilizing innovative concepts for evolving Canada’s oil sands in the next generation of projects.”
If financing can be arranged by July 5, UTS will pay C$125 million cash for TrueNorth’s stake, plus 7 million warrants, each convertible into one UTS common share at a price of 75 cents for a period of five years. UTS, which hopes to raise C$50 million through a private placement of shares to provide working capital, said it has filed a revised plan and timetable to the Alberta government and is encouraged by progress in those negotiations. It is also looking for prospective partners and is working on technologies to upgrade the raw bitumen on site.
Fort Hills was originally scheduled to come on stream in 2005 at 95,000 barrels per day and double in size by 2008. But UTS said it is now weighing an initial production phase of 50,000 bpd in 2009, growing to 200,000 bpd through further expansions.
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