Saskatchewan’s crude hopes dashed as Oil Sands Quest takes a beating

Proving that nothing is a sure bet – not even the development of prime bitumen fields – Oilsands Quest on Tuesday suffered a second day of heavy losses, dropping 10% shortly after the open.

The losses come after the company said it will ask for more cash from investors because its almost one-year long global quest to find a heavyweight partner has come up empty handed. It is also bad news for Saskatchewan’s oil sands aspirations as Oilsands Quest was hoping to build the province’s first thermal mine but does not have the wherewithal to go it alone.

On Monday the counter lost 12% and in early afternoon trade on Tuesday Oilsands Quest Inc. was still down 6% on the NYSE Amex exchange on close to double the usual volumes of traded shares. The sector was flat on Tuesday with Suncor and Imperial down and up 0.2% respectively.

Last week the Calgary-based firm announced that what it dubbed its “formal strategic alternatives process” launched as far back as August last year had come to naught.

Cash-strapped Oilsands Quest and its financial advisors TD Securities left nothing off the table and were considering strategic financing opportunities, asset divestitures, joint ventures and/or a corporate sale, merger or other business combination before settling on a rights offer. Investors abandoning the stock in droves casts doubt on the success of a rights offer of which details have not yet been released.

First prize in the process would have been to find a strategic investor or outright buyer among the large number of Canada and international energy companies that carried out due diligence on Oilsands Quest over the last year.

“We have always planned to partner with a larger entity at some point, because building a commercial oil sands project is beyond the financial or operational capability of a company our size,” said Oilsands Quest Chief Executive Officer Garth Wong.

But as the company so delicately put it in a statement released on Wednesday last week: “the process did not result in any compelling proposals to Oilsands Quest.”

The company is hoping to build Saskatchewan’s first oil sands project and in June extended by a year the government permits on its main discovery at Axe Lake but has given up permits on an additional 100,000 hectares. It holds five other licenses in Saskatchewan which it will also likely return to the province according to a Calgary Herald report.

The company said the proceeds from the rights offering will be used amongst others to advance the planned pilot project at Axe Lake in Saskatchewan in order to demonstrate that the Axe Lake reservoir can be produced using proven steam-assisted gravity drainage (SAGD) technology.

The Pembina Institute estimates the oilsands in Saskatchewan could hold as much as 2.3 billion barrels of bitumen, and cover an area of 27,000 square kilometres. Development of oilsands is still in its early stages in Saskatchewan, so there is still an opportunity to do things properly and avoid the mistakes in Alberta, the researcher said in a study.

Image of a Oilsands Quest drilling operation is courtesy of the company.