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UTS expects Fort Hills oilsands project to go ahead at smaller scale

CALGARY - The delayed Fort Hills oilsands project could be developed at a smaller scale than previously conceived once operator Suncor Energy Inc. (TSX:SU) decides where to rank it on its list of priorities, says the head of UTS Energy Corp. (TSX:UTS).

"The key question for that is: 'Where does Fort Hills fit in that portfolio?' And obviously we'll be working pretty closely with Suncor trying to understand where that is," UTS chief executive William Roach told an energy conference in Calgary on Wednesday.

Suncor acquired a 60 per cent working interest in Fort Hills when it merged with Petro-Canada last month.

UTS and Vancouver-based miner Teck Resources Ltd. (TSX:TCK.B) evenly split the rest.

Suncor has been working on integrating its oilsands-focused business with Petro-Canada's more diverse array of assets since the transaction became official Aug. 1.

"My plea on this one is give them some time," Roach said at the event hosted by Calgary brokerage firm Peters & Co.

A slide in Roach's presentation showed that UTS is expecting Suncor to present a plan to the other Fort Hills partners toward the end of this year or beginning of next year.

Nearly a year ago, a decision on going ahead with the mining portion of Fort Hills was delayed after costs soared by nearly half to more than $21 billion.

Its accompanying upgrader, which would turn the gooey bitumen into easier-to-process synthetic crude oil, was shelved indefinitely.

Most recently the project has been conceived as going ahead without the upgrader, and with two production trains churning out 160,000 barrels of bitumen a day at a fraction of the original cost.

"The last words from (former Petro-Canada CEO) Ron Brenneman prior to handing over the keys were: 'It's less than $10 billion,"' said Roach.

"We've done a bunch of independent work on that and we think in today's market, that will be around $8 billion," of which UTS would be on the hook for $700 to $800 million.

However, Roach's assessment is that a single production train of 80,000 barrels of bitumen per day would be a more likely outcome, which would mean UTS needs to shell out about $300 million.

"But that's all conjecture, we need to sit down with Suncor and see where that's headed in their portfolio," he said.

At the conference on Tuesday, Suncor vice-president of investor relations John Rogers said the company will continue to be "all about the oilsands," and was in the process of "significantly downsizing" its newly bulked up natural gas business.

Earlier this year, UTS was the subject of a hostile takeover bid by French energy giant Total S.A.

Total eventually dropped its pursuit, after which UTS signalled that it was looking at an array of strategic alternatives, including a possible sale of the company.

To date, no sale has materialized and the company's shares trade below what it perceives to be the value of its portfolio.

When asked at the conference why UTS has not been snapped up yet, Roach did not have an answer.

He said under the Fort Hills contract, Suncor and UTS would both have rights of first refusal of those leases.

"It constantly amazes me that we're trading where we are, and we have such a resource-rich portfolio," he said.

"I suspect the share price is reflecting the waiting on Suncor issue, but I don't know."

UTS shares were up a penny to $1.71 in late afternoon trading on the Toronto Stock Exchange Wednesday.

The shares were trading at a 52-week high of $2.91 a year ago, and a low of 67 cents last October.

Suncor shares were up 76 cents or two per cent to $39.41 on the TSX late in the day Wednesday, and traded at a 52-week high of $52.70 a year ago and low of $18.80 last November.