Largest UTS shareholder rejects Total takeover bid

Globe and Mail Update, DEREK DeCLOET

January 28, 2009 at 1:14 PM EST

UTS Energy Corp.'s largest shareholder says there's no way he'll support Total SA's takeover bid because it's too low and doesn't ascribe any value to the company's share of the oil at the Fort Hills project in Alberta.

“We believe that the value of cash on the balance sheet, plus carried interest, is worth in excess of $2.61 a share,” said Greg Boland, chief executive officer of Toronto's West Face Capital. Mr. Boland said West Face owns more than 10 per cent of UTS.

The “carried interest” refers to the value of UTS's contract with its partners on the Fort Hills oil sands project, Petro-Canada and Teck Cominco Ltd. The deal requires the two larger companies to pay a portion of the development costs on behalf of UTS.

UTS owns a 20 per cent working interest in Fort Hills, which is estimated to have four billion barrels of oil, but which has been plagued by cost overruns.

UTS Energy owns a 20-per-cent stake in Alberta's Fort Hills Project, an oil sands field with an estimated 4 billion barrels of bitumen.

UTS Energy

Petro-Canada

Teck Cominco Ltd.

Mr. Boland said that at $1.30 a share, Total is paying “zero” for the oil. UTS was trading at $1.62 a share in early afternoon trading Wednesday in Toronto. That was double what they were trading on Tuesday.

“The resource value is greater than zero, as demonstrated by Total's willingness to be involved in the project and commit fresh capital,” he said.

The French company on Tuesday evening said it will offer $617-million in cash for the Calgary-based oil sands company.

Total said its offer would be launched “in the coming days” and would run for “at least 60 days.”

The deal is conditional on Total receiving at least 66.67 per cent of UTS Energy's shares.

“It's a shocker – I wasn't expecting that,” said William Lacey, analyst at FirstEnergy Capital Corp in Calgary.

Alberta is home to vast reserves of oil sands, a tar-like bitumen that is extracted using mining techniques. Industry officials estimate the region could yield as much as 175 billion barrels of oil, which would make Canada second only to Saudi Arabia in crude oil reserves.

However, the massive oil sands projects have been criticized as a growing source of greenhouse gas emissions.

In its own statement Wednesday, UTS Energy said it is “reviewing the unsolicited take-over proposal” and “will pursue the course of action that is in the best interests of UTS and its shareholders.”

The Fort Hills Project is led by Petro-Canada with a 60 per cent stake. The remaining 20 per cent is owned by Teck Cominco.

A final decision on developing the project is expected to be made by 2010, with production starting as early as 2013, Total said.

The project will strengthen Total's oil sands portfolio in northern Alberta, where it already owns majority stakes in two other developments — the Joslyn Project and the Northern Lights Project.

Besides Fort Hills, UTS Energy also holds a 50 per cent working interest in an additional 122,667 hectares of oil sands prospective leases located primarily on the west side of the Athabasca River, UTS Energy said.

UTS shares have tumbled 84 per cent in the past year, as project costs rose, oil prices sank and investors questioned the company's ability to finance its share of Fort Hills.

“We have a strategy to grow our position in North America,” Total spokesman Paul Floren said from the company's headquarters in Paris.

“Acquiring the UTS interest in the Fort Hills project complements the strategy by allowing us to acquire a relatively large, attractive land position with a significant oil sands project and a capable operating partner at a fair price.”

All of UTS's assets could add about 2.1 billion barrels of resources to Total's Canadian oil sands portfolio, Mr. Lacey said.

“Oil is what it is right now, and the markets are what they are,” he said. “But there's a pretty material resource behind what you've got here.”

He suggested Petro-Canada may be chief among firms that could consider a rival bid.

Mr. Floren said Total may consider increasing its stake in Fort Hills if it is successful in scooping up UTS. But he declined to comment on whether the French oil company was looking at Teck's 20 per cent interest.

Reports have said Teck may be interested in selling its stake to help it repay billions of dollars in debt it took on last year to buy Fording Canadian Coal Trust.

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