Oilsands player faces 18-month deadline for extra $3B
Shaun Polczer
Calgary Herald; Canwest News Service
Wednesday, October 01, 2008
CALGARY - The head of embattled UTS Energy Corp. says his firm has about 18 months to come up with an extra $3 billion to fund its share of higher costs at the Fort Hills oilsands project in northern Alberta.
Last month, majority partner Petro-Canada said cost estimates for the project were up about 50 per cent to $24 billion. At a conference in Calgary on Tuesday, UTS chief executive Will Roach said the credit crisis in world markets was a perfect storm of factors lining up against the company.
"From UTS's perspective, this has happened at just the wrong time, when we were trying to access capital markets. The good thing from UTS's perspective is that we've got 18 months to fix the problem."
Petro-Canada's cash call came at almost the same time as major investment banks were imploding south of the border, taking down Lehman Bros. and Merrill Lynch, and fuelling doubts as to whether small oilsands outfits such as UTS will be part of the future oilsands landscape.
Last week, Adam Waterous, president of Scotia Waterous oil-and-gas advisory group, predicted independent oilsands players like UTS are "an endangered species" as financial problems make it harder for smaller players to get enough cash to work in a field dominated by multinationals.
"It's terrifying," Roach said. "The world has changed dramatically. Access to capital has changed over the last year, and that is going to take a whole bunch of time to sort out."
UTS's only assets are its interest in a series of undeveloped oilsands leases. The company has no production, revenue or cash flow.
Its shares -- whose 52-week high is $6.37 -- have lost about three-quarters of their value since July. After losing 12 per cent in Monday's market rout, they fell a further 10 per cent Tuesday to close at $1.27.
"I simply don't really understand it, other than the rationalization must be that the market has decided we will not be able to fund our share of the project and, therefore, we're not a good bet," Roach said.
"I personally think we've got a lot of options and a lot of good assets."
Justin Bouchard, an oilsands analyst with Raymond James in Calgary, said it is "doable" but "challenging" for smaller companies to raise money in the current crisis. Small oilsands companies are in a unique position because they have neither production nor assets other than the leases they hold.
Firms such as UTS are potentially sitting on billions of barrels in production, but depend on support from financial markets and banks. After the latest meltdown, financial institutions in turn will find it increasingly difficult to provide money without cash flow or collateral to backstop the investments.
Without access to cash, many small juniors might be sold or forced to merge. Roach said the issue of maintaining independence is "not something I want to talk about."
Bouchard agrees the market isn't reflecting the value of UTS assets in its stock price, but said markets are the most efficient means of discerning what that value actually is.
Oilsands development "takes a lot of money. Any of these small guys looking for debt or equity today, it's tough. And it's only going to get tougher."
