Total bids for Canadian oil sands company By Carola Hoyos in London

Published: January 28 2009 13:53 | Last updated: January 28 2009 13:53

Total, the French energy group, on Wednesday launched a public offer worth C$617m (US$502m) to acquire UTS Energy, a Canadian company with oil sands assets.

The cash offer, which is 57 per cent above UTS Energy’s closing price on Tuesday, highlights the French company’s confidence in its own balance sheet and its belief that oil prices will again rise significantly.

Oil stabilises while gold slips - Jan-28Petrobras to pump $28bn into pre-salt fields - Jan-25UTS Energy’s main asset is its 20 per cent stake in the Fort Hills project in the Athabasca oil sands. The mining project is operated by PetroCanada, which has a 60 per cent stake, with Teck Cominco, the mining company, holding the remaining 20 per cent.

Analysts said Total’s offer for UTS, though small for a company with a market capitalisation of $144bn, fit well into Total’s strategy despite the depressed oil price and the fact that Canadian oil sands developments generally cost more than conventional projects.

The companies behind the Fort Hills project have been re-evaluating it since October 2008, when oil prices began their rapid descent from $147 a barrel in July to around $40 a barrel today.

Delivery has been delayed by about three years to 2013. When Teck Cominco entered the project in 2005, the total cost of the project was estimated at C$5bn, with initial production to start in 2010 and eventually reaching 190,000 barrels of bitumen a day. Production costs were estimated at C$12-C$18 a barrel.

Christophe de Margerie, Total’s chief executive, believes oil prices will again rise as an oil supply crunch develops anew because companies are putting off projects that are no longer viable at current oil prices.

Gordon Gray, analyst at Collins Stewart, said the deal sent an important signal about Total’s confidence in its balance sheet strength, adding that Total’s net debt at the end of the third quarter stood at Euro8.2bn, a net debt to equity ration of 16 per cent.

He said: "Our recent study stress-testing the [oil companies] under prolonged $40/bbl oil prices showed Total to be one of the big-caps best able to withstand this scenario, thanks in part to likely sales of its Euro8bn stake in Sanofi Aventis."

Total has two other projects in the Athabasca oil sands: Northern Lights and Joslyn, whose development plan Total is reassessing.

Total shares were up 1.6 per cent on Wednesday.