Digging up the tarry mess that comprises the Canadian oil and tar sands costs real money, and Oilsands Quest, Inc. (AMEX: BQI) has apparently decided it doesn’t have enough. The oil sand and tar sands company has announced that it “has initiated a process to explore strategic alternatives for enhancing shareholder value” thanks to dropping crude oil prices.
Oilsands Quest had $18.64 million in cash and equivalents as of April 30th, and deferred long term liabilities of $62.5 million. The company cash flow from operations was negative, and had been for four quarters. Oilsands’s market cap is around $175 million and its shares haven’t traded above $1 since mid-January. This hardly positions Oilsands Quest to compete with Suncor Energy Inc. (NYSE: SU) or Canadian Natural Resources Ltd. (NYSE: CNQ), the oil sands market cap leaders at $49.5 billion and $35.4 billion respectively.
Oilsands Quest holds leases on more than 650,000 acres of the western Canadian oil sands region and nearly 490,000 acres of exploration rights for oil shale development. The Oilsands properties are concentrated on the eastern edge of the Alberta deposits and the company has planned a pilot project that it hopes to develop into a 30,000 b/d commercial project.
According to an executive with Statoil ASA (NYSE: STO), the capital cost of developing a new project is about $35,000/barrel of daily production. Thus, a 30,000 b/d project would cost more than $1 billion to develop.
Crude prices above $70/b make such costly projects possible, but not likely, at least in the case of Oilsands Quest. The company lost a buyer for its oil shale assets last week as the potential buyer was unable to secure financing for the deal worth C$12.5 million. Why any company would pay even that paltry sum for an oil shale deposit remains a mystery, but at least no financial institution would back the deal. There may be hope yet for the global banking system.
Be that as it may, Oilsands Quest does keep investor interest up. Even though its price is low, average daily volume is over 2 million shares, probably indicating that hopeful investors expect a major investment or a sale any day now. Shares are up more than +8% ($0.04) so far today.
As of this writing, Paul Ausick did not own a position in any of the stocks named here.
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