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The Canadian Press - ONLINE EDITION

UTS Energy reduces resources estimates for Fort Hills, Frontier projects

By: Lauren Krugel, THE CANADIAN PRESS

5/02/2010 4:06 PM | Comments: 0

CALGARY - UTS Energy Corp. (TSX:UTS) says it will be able to access less bitumen economically from its oilsands holdings than it previously thought, due partly to new environmental rule in Alberta.

The Calgary-based company's share of the contingent resources at the Fort Hills and Frontier projects in northeastern Alberta has been scaled down by a total of 147 million barrels of bitumen, the heavy tar-like crude squeezed from the oilsands.

That amounts to a fraction of UTS' total resources, which probably wouldn't be developed for a few decades, chief executive William Roach said in an interview.

"I think if you have a strong commodity price at the time you're making these decisions in 20 to 30 years time you probably will find that these resources will come back into production," he said.

At Fort Hills, the UTS's share of the project was cut by 98 million barrels of contingent bitumen resources.

The proposed Fort Hills mine is controlled by Suncor Energy Inc. (TSX:SU), which has a 60 per cent stake in the project. UTS and Teck Resources (TSX:TCK.B) each own 20 per cent of the project.

The changes are mainly due to a new directive from Alberta's Energy Resources Conservation Board about how to handle dry tailings, remnants of the oilsands extraction process that have been separated from wastewater.

Companies are now required to remove any dried tailings overlying the resource in addition to existing overburden. Overburden is essentially any rock, soil or other material that needs to be taken away in order to access to the oil-soaked sand. The changes mean it would be more expensive to mine the bitumen.

"These resources may well be economically developed later," Roach said.

Of the six oilsands miners in northern Alberta, UTS is the only one to say the new tailings directive will increase its costs or hinder oil recovery, said ERCB spokesman Davis Sheremata.

"What we're hearing from other operators is that the dry tailings are not going to significantly add to the overburden," he said.

UTS submitted a tailings plan last September, which did not indicate the new ERCB directive would affect mining costs, Sheremata added.

"If they are planning to change their tailings plans, they should notify us as soon as possible because this is news to us," he said.

Meanwhile, estimates from UTS's Frontier holdings were cut by 49 million barrels of contingent bitumen resources because of changes to the design of the pit boundary. Frontier is a 50-50 joint venture between UTS and Teck, Canada's largest publicly traded miner.

There were no changes to UTS' Equinox project, which is also evenly split with Vancouver-based Teck, a major zinc, copper and coal producer.

UBS Investment Research analyst Andrew Potter called the revisions "a minor haircut" and that the "investment case for UTS remains relatively unchanged."

Market reaction was indeed muted, with UTS shares falling a penny s to $2.51 in afternoon trading on the Toronto Stock Exchange.

The Frontier and Equinox projects have a combined 891 million barrels of company gross contingent bitumen resource to UTS.

UTS and Teck are drilling 80 core holes this season in the Frontier area, and expect an updated resource estimate for 2010.

Fort Hills was put the project on hold in the fall of 2008, when costs skyrocketed and crude prices fell.

Suncor, which acquired its stake in the project when it merged with Petro-Canada in August, has said it won't decide whether to go ahead with Fort Hills until late this year at the earliest, as it presses ahead with Phases 3 and 4 of its Firebag project instead.

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