UTS Chief Says Total’s Higher Bid Undervalues Company (Update1)

By Joe Carroll

 

April 13 (Bloomberg) -- Total SA's C$830 million ($680 million) offer for Canadian oil-sands developer UTS Energy Corp. still is too low, even after an increase of 35 percent, UTS Chief Executive Officer William Roach said.

UTS's largest shareholders have told the company that the offer from the French oil company is inadequate, Roach said today in a telephone interview from Calgary. The bid, which was raised today to C$1.75 a share from C$1.30, is hundreds of millions of dollars less than the company's combined cash balance and the value of its stake in the C$25.3 billion Fort Hills oil-sands project in Alberta, he said.

"This doesn't really reflect the value of the company," Roach said. "It's interesting to note that the C$1.75 offer was lower than where we closed" last week.

Roach said he expects the UTS board to make a formal recommendation to shareholders on the offer by the end of this week.

UTS owns a 20 percent stake in Fort Hills, located in the same region of Alberta where Total plans to spend $10 billion to $15 billion during the next decade on new mines and wells. Western Canada's tar-soaked bogs and river valleys hold an estimated 174 billion barrels of crude, the largest deposit outside of Saudi Arabia, according to the Canadian Association of Petroleum Producers.

Suncor, Petro-Canada

Suncor Energy Inc.'s March 23 agreement to pay about C$19.3 million for Calgary-based Petro-Canada, majority owner of Fort Hills, enhanced the value of UTS and justifies a higher price for it, Roach said.

Suncor's acquisition of Petro-Canada to create the largest Canadian energy company probably will drive down drilling and construction costs, improving the profitability of oil-sands ventures such as Fort Hills, said Roach, who joined UTS in 2004 from Husky Energy Inc.

In addition to the Fort Hills stake, UTS owns a 50 percent interest in leases on oil-soaked land west of the Athabasca River in Alberta covering an area 21 times the size of Manhattan.

UTS, which has never pumped a barrel of crude, more than doubled in the past year, the second-best performance among Canadian oil and gas stocks. Only Toronto-based Pacific Rubiales Energy Corp. rose by more, soaring 161 percent.

UTS rose 1 cent to C$1.81 today on the Toronto Stock Exchange, or 6 cents above Total's bid. The premium indicates investors believe Total isn't done raising its bid, said Satya Das, founder of advisory firm Cambridge Strategies Inc. in Edmonton.

UTS had cash and cash equivalents of C$276 million as of Dec. 31, according to data compiled by Bloomberg. Roach said UTS's so-called earn-in agreement, which yields the company a 20 percent stake in exchange for footing 5 percent of development costs, is worth C$750 million.

Total had 12.32 billion euros ($16.46 billion) of cash reserves at the end of 2008 and shares held in treasury worth about 5 billion euros, according to data compiled by Bloomberg.

To contact the reporters on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net