David wants to become oil sands Goliath

Gary Park, Petroleum News Calgary correspondent

UTS Energy, an oil sands minnow, is making overtures to take control of a proposed C$3.5-billion project that was suspended eight months ago.

Calgary-based UTS hopes to acquire all or part of the 78 percent stake in the Fort Hills project held by TrueNorth Energy, a subsidiary of Koch Industries, the second-largest private company in the United States.

UTS Chairman and Chief Executive Officer Dennis Sharp said UTS, which holds the remaining 22 percent stake, wants to address various options for development, including a scaled-down version that would initially produce 50,000 barrels per day and include an upgrader to process raw bitumen into higher grades of crude.

TrueNorth deferred planning for the 190,000 bpd facility after investing C$120 million in exploratory drilling, project engineering and obtaining regulatory approvals.

It cited rising capital costs in the oil sands sector and market uncertainty stemming from the potential impact of Canada’s decision to implement the Kyoto climate-change treaty.

But TrueNorth’s plans to ship the bitumen to Koch’s U.S. refineries was seen by analysts as an obstacle to attracting additional partners.

UTS said in its statement that under regulatory approvals it must start producing bitumen from Fort Hills 2.8 billion barrels of reserves by Oct. 31, 2005, to retain its leases.

As well, it is also running short of money. It had C$3.5 million in cash and short-term deposits as of June 30, compared with C$10.8 million, leaving only enough to continue operations to the end of 2003.

UTS said the “only source of additional funds presently available to finance its share of the costs of Fort Hills and the corporation’s working capital needs is the sale of additional equity capital or borrowings.”

Sharp said it is “essential that UTS gains control of the agenda and builds a positive momentum for strategic partnering discussions.”