UTS Thwarts Total Hostile Bid Attempt, Can it Survive Another?

UTS Energy,the Calgary-based company with a stake in the Alberta’s oil sands, resisted French oil giant Total’s attempts at a hostile takeover. Just don’t expect UTS to survive another bidding bout.

Lots of folks will argue there is little interest in plunging dollars into the Canada’s oil sands — an expensive endeavor that involves an extraction process similar to mining — with the economy slumping and all. But UTS begs to bought out.

UTS’ major asset is its 20 percent stake in the Fort Hills oil sands project in Alberta, which industry officials say could yield as much as 175 billion barrels of oil. Total was unable to secure the required two-thirds of votes from shareholders because UTS’ board of directors and the majority of its shareholders understand that even with $50 barrel of oil, its Fort Hills stake makes it valuable. 

Since Total abandoned its bid, UTS shares have endured a rollercoaster ride and hedge funds are pulling their money out. This makes UTS an even better deal for any trolling oil giant and in the short term places more pressure on shareholders.

UTS is a small player compared to other oil sands players. Petro-Canada, the operator of the Fort Hills project with 60 percent interest, is in the process of being acquired by Suncor Energy in all-stock deal valued at $18 billion. The deal will create the biggest energy company based in Canada and one that holds the largest oil-sands resource position. Both companies have said the deal will provide cost-savings and allow it to take on higher cost production amid lower oil prices. Bitumen mined in the oil sands can be upgraded at Suncor facilities.

To make matters even sunnier, it’s getting a little cheaper to develop oil sands, according to Petro-Canada. In Petro-Canada’s first quarter earnings report today, it said the cost of developing oil sands have fallen 30 percent to below C$10 billion due to slowing escalation in wage rates, better productivity and lower global steel prices.

Suncor and Petro-Canada said last week it’s not interested in acquiring a larger stake in the Fort Hills project. The combined company may change its tune once the acquisition dust settles. I suspect another major oil player, maybe even Total, will take another stab at UTS. And if UTS fends off another takeover attempt, there’s always one other Fort Hills player –mining company Teck Cominco, now Teck Resources – which is considering selling its 20 percent stake.