Energy Ink

Sunshine Oil Sands Ltd. boosts production targets

Company reports $15 million net loss, closes $200 million credit facility

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November 15, 2012

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Sunshine Oil Sands Ltd., the Calgary junior that raised $570 million earlier this year in its debut on the Hong Kong Stock Exchange, has returned to Canada in search of fresh capital.

The upstart oil sands producer, which owns rights to a massive tract of land in northern Alberta, will trade under the symbol SUO in Toronto starting Friday after it was approved for a secondary listing this week.

“We believe this listing will help demonstrate the value inherent in our company and its securities as well as provide a convenient market for North American investors to participate in the Sunshine story,” Sunshine president and chief executive officer John Zahary said in a statement.

That story has been a tough sell to date. The company’s shares have fallen since it debuted on the Asian bourse. It repurchased 61 million shares for a total consideration of $25 million, or half of what it agreed to spend on buybacks in September, between September 16 and October 12, it said the third-quarter operational update.

As part of the secondary listing, Sunshine said it will not issue any new shares. Nor will it use the occasion to raise additional funds, a decision that’s hard to square with its ambitious development plans.

The company had burned through $110 million as of September 30 at its 5,000-barrel-per-day West Ells property. Plans call for eventually scaling production up to 100,000 barrels daily at a cost of $3.5 billion.

That’s not all. “Sunshine has recently updated its commercial development plans in the West Ells, Thickwood and Legend Lake areas and is now targeting over 300,000 barrels per day of production from these areas, representing a 50 per cent increase in previously announced commercial production targets,” the company said as it reported third-quarter results.

No timeline was given on the updated development plans. Sunshine booked a net loss of $15.5 million in the three months ending Sept. 30, compared to a loss of $10.2 million a year earlier, and said it has $356 million in cash on hand.

It also recently closed a $200 million credit facility led by ATB and the Bank of China, which “adds a higher degree of financial liquidity during this low cash flow/high spend development period,” RBC Dominion Securities analyst Mark Friesen told clients yesterday.

Still, it’s a long climb from zero to 300,000 barrels per day. Sunshine, which has yet to squeeze any commercial volumes of hydrocarbons from its assets, said in the third-quarter update that “other parties” have expressed an interest in its oil sands holdings.

All the better, as it may have to make good on that “strategic co-operation” agreement with Sinopec sooner than originally planned.

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