Oil sands stocks take beating as Connacher shelves expansion
Carrie Tait, Financial Post Published: Monday, October 06, 2008
CALGARY -- Oil sands stocks were being clobbered Monday, an indication the market continues to doubt whether these companies will be able to secure financing to plow ahead with expensive projects.
Connacher Oil and Gas Ltd. admitted Monday it has shelved plans to expand capacity at its heavy oil refinery in Great Falls, Mont. It had wanted to jump from processing 9,500 barrels of oil a day to 35,000 barrels.
"Connacher's decision to suspend the refinery expansion was also influenced by the emergence of weak overall economic conditions and the volatile and uncertain state of both capital and credit markets," the Calgary-based company said in a statement.
Suncor Energy Inc., the largest oil sands company, is down $4.09 or 11% to $32.35 by midmorning. Canadian Oil Sands Trust, the largest partner in the Syncrude Canada Ltd., has fallen $2.69 or roughly 8% to $30.31. UTS Energy Corp., which on Sept. 18 broadcasted its financing troubles, is now trading around 98 cents, a 14% drop Monday morning. It is a 20% partner on the Fort Hills oil sands project with Petro-Canada and Teck-Cominco Ltd.
Connacher dropped 36 cents or 15% to trade around $2.02.
The decline came as oil fell below US$90 a barrel, its lowest in eight months. U.S. light crude for November delivery was down US$4.14 a barrel at US$89.74 by midday, its fourth day of losses.
As the market batters oil sands companies, observers have argued that intergrated companies -- those which produce, refine, and eventually sell oil and gas products themselves -- will be better off because they generate cash from other parts of their business.
Connacher said it remains a "well-financed company with a solid asset base" with a net asset value that is not reflected in its stock price. It said it secured financing before the market plunge, but at the same time, it rang the warning bell for the industry as a whole, as well as its own situation.
"We believe the company is well-positioned to withstand the current economic downturn and credit and financial market instability. We take
this position because we made arrangements to appropriately prefund our second 10,000 barrels per day steam-assisted gravity drainage (SAGD) oil sands project at Algar before the events of the recent months effectively closed the financing window for almost any new projects.
"Thanks to sound forward planning, we have the funds and liquidity to carry out our chosen and priority projects.
"That being said, the company intends to monitor industry, economic and financial market conditions carefully and is reacting to prevailing circumstances beyond its control by adopting a disciplined, conservative, self-financed approach to its capital programs," it said.
