Globe and Mail Update, with files from The Canadian Press

February 9, 2009 at 1:43 PM EST

CALGARY — Markets scoffed at an effort by oil sands junior UTS Energy Corp. to prove it is worth significantly more than Total SA has offered for its assets.

Through its Canadian subsidiary, Total E&P Canada Ltd., the French energy titan launched a hostile offer for UTS at $1.30 a share on Jan. 27.

UTS said Monday it shareholders should reject the Total bid, and offering evidence for what it says is a fair value for its stock: $3.57.

“Obviously we think the company is significantly more valuable than this offer,” UTS president and chief executive officer William Roach said in an interview Monday morning.

UTS Energy

But the company's shares fell far short of that mark on the markets, rising only 10 cents to $1.80 at the end of morning trading.

“I certainly wouldn't be able to make a case that the shares are worth $3.57,” BMO Nesbitt Burns analyst Randy Ollenberger said. “If you did get a full value, you're in the range of $2.23 not $3.57.”

Eager to attract more money for its assets, UTS has begun the work of bringing in other possible buyers.

“All I can say is, we think there will be a lot of people interested in these high quality, rare assets,” Mr. Roach said.

But two senior Calgary investment bankers said the chances of a white knight emerging are extremely thin, given current commodity prices and the uncertainty surrounding construction of Fort Hills, the jewel in the UTS portfolio.

UTS holds a 20-per-cent stake in Fort Hills, the largest undeveloped oil sands project on Earth. The remainder is owned by Petro-Canada, with 60 per cent and Teck Cominco Ltd., with 20 per cent. However, an investment decision on the project was delayed last fall after cost estimates rose to $25.3-billion from $15.2-billion.

In its circular, UTS says it believes the partnership will now be able to bring those costs down to about $10-billion. About two-thirds of that savings comes from a decision to cancel work on a bitumen upgrader that would have been associated with the oil sands mining operation.

However, Mr. Ollenberger said even at that price, the project needs a sustained $80 crude price to be profitable.

“I think the project is viewed as far too expensive, with far too many uncertainties to attract any white knights,” he said. “Unless Petro-Canada changes its mind, I think it's Total or nothing.”

The board of directors of Calgary oil sands player UTS Energy Corp. rejected the hostile offer from French energy giant Total SA Monday, calling the $1.30 per share offer “inadequate,” “opportunistic” and “contrary to the best interests of shareholders.”

In a release, UTS offered a dozen reasons why the $617-million offer, launched Jan. 27, is insufficient.

Chief among them is UTS's assertion that it is worth $3.57 per share, based on the value of the cash it has on hand, the money it is owed by partners in the Fort Hills oil sands project and the amount it is has invested in its portfolio of projects.

UTS also said the Total offer, made through its Canadian subsidiary Total E&P Canada Ltd., doesn't properly value UTS's “world class oil sands assets,” fails to put a price on the synergies Total could obtain by merging UTS assets with its own and has already met resistance from major UTS shareholders.

“This is an inadequate and opportunistic offer that fails to recognize the full value of UTS,” said Dennis Sharp, chairman of the board. “We can do better for our shareholders than what this offer represents.”

UTS has created a special board committee to pursue various initiatives to maximize shareholder value.

Late last month, Total offered $1.30 a share for UTS, which has a 20 per cent working interest in the Fort Hills oil sands project in northern Alberta, which it operates jointly with Teck Cominco Ltd. and Petro-Canada.

In outlining its rejection of the Total bid, UTS said:

- The sum of UTS's cash and investment in all its projects, including Frontier and Equinox, and remaining Fort Hills project earn-in is $3.57 a share, far above the Total offer.

- The Total offer does not reflect the value of UTS's world class oil sands assets and growth prospects;

- The bid does not include any value for the significant efficiencies available to Total in acquiring UTS.

Total's Canadian subsidiary has a 74-per-cent stake in the Joslyn project in the area, and a 60 per cent stake in the Northern Lights project. The French company also holds a 50 per cent interest in the Surmont lease, located about 60 kilometres southeast of Fort McMurray.

- The timing of the Total offer is opportunistic given the recent dramatic decline in the price of oil and in the price of UTS shares;

- Major institutional shareholders have termed the Total offer as inadequate; “UTS has built considerable shareholder value through the prudent development of our oil sands assets, while at the same time, establishing the platform for significant future growth,” president and CEO William Roach said in a statement.

“Over the past five years, UTS has grown from a single project company with a $50 million market capitalization to become a well-financed exploration and development company with three projects, major partners and a significant exploration portfolio.”

Last week, UTS Energy said it has significantly increased its contingent bitumen resources with the addition of the Frontier oil sands project, for a total best estimate of 1.7 billion barrels.

UTS said Thursday its three-year exploration program has discovered two additional oil sands mining projects: Frontier and the Equinox project. In both projects, UTS holds a 50 per cent working interest and Teck Cominco Ltd. holds the other half.

In early trading Monday, UTS shares rose two cents to $1.72.

Bs