UTS Energy Corp fka UTS

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Total bids for Canadian oil sands company UTS Energy

By Hyun Young
Last update: 11:21 p.m. EST Jan. 27, 2009
OTTAWA (MarketWatch) -- Total SA
Last: 52.87+1.84+3.61%

3:02pm 01/28/2009

TOT 52.87, +1.84, +3.6%) Tuesday launched a C$617 million all-cash bid for UTS Energy Corp. (UTS.T), seeking to boost its oil sands assets with a stake in the delayed Fort Hills development.
The French oil major is bidding C$1.30 a share, or around 57% above UTS' closing price of 83 cents on the Toronto Stock Exchange Tuesday.
Calgary-based UTS holds a 20% stake in the Fort Hills oil sands project in northern Alberta, one of the higher-profile victims of plunging oil prices and tightened credit markets. In November, project leader Petro-Canada (PCZ:Petro-Canada
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Last: 23.63+0.86+3.78%

3:02pm 01/28/2009

PCZ 23.63, +0.86, +3.8%) , which owns 60%, put part of the development on hold and delayed the rest by at least a year after estimated costs spiked to more than C$28 billion.
Mining firm Teck Cominco Ltd. (TCK:Teck Cominco Limited
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Last: 4.92+0.36+7.89%

3:01pm 01/28/2009


TCK 4.92, +0.36, +7.9%) owns the remaining interest, but is struggling under debt from a recent acquisition.
Alberta's high-cost oil sands - the biggest crude reserve outside Saudi Arabia - have felt the brunt of oil's freefall from July's record heights near $150 a barrel. Crude prices have slumped more than 70% since then, causing billions of dollars in canceled and delayed projects.
Most oil sands developments need at least $80 a barrel oil to break even, according to analyst estimates, while Fort Hills was reckoned to need prices above $100.
But only speculation of takeovers has emerged until now, despite depressed market values. As with most small companies, UTS shares have been hammered by investors who doubted its ability to pay for its share of the project.
Neither UTS nor Total could be reached for comment.
The other Fort Hills partners would only have right of first refusal had Total bid for UTS' Fort Hills assets, rather than the entire company, Petro-Canada spokesman Peter Symons said. Petro-Canada would "certainly welcome" Total as a partner, given its size and experience, if it succeeds in its bid, Symons added.
"But we're happy with partnership we have and we're happy with our 60% (stake)," he said.
In November, Petro-Canada Chief Executive Ron Brenneman said the company needed to have "a lot more confidence in our partners' ability to stay with us...than we have now," alluding to UTS' and Teck's financial difficulties.
Petro-Canada has the ability to counterbid with a significant premium to Total's offer, of C$2.25 a share, reckoned Jeff Martin, an analyst at Calgary-based Peters & Co. The company could also buy the Fort Hills assets from Total after the transaction was concluded, leaving the French major with leases closer to its existing assets, he added.
"However, although the transaction would ultimately be accretive, Petro-Canada would increase its overall spending commitments to the project and may have difficulty funding these commitments depending on the eventual size of the project," Martin said in a note.
Total said buying UTS will strengthen Total's portfolio in the oil sands region of northern Alberta, where it already holds a majority stakes in the proposed Joslyn and Northern Lights projects. Both of these developments will be oil sands mines, like Fort Hills.
Total's offer will be open for at least 60 days and will need the support of a minimum of two-thirds of UTS shareholders.
Fort Hills first 160,000 barrel-a-day phase was initially slated to start up in 2011, which is now likely to occur in 2012 at the earliest. The project's upgrader, a costly facility that processes the sludgy oil sands bitumen into a lighter synthetic crude, has been put on hold indefinitely and could be canceled altogether.
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