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CALGARY HERALD: Western Oil Sands blames falling crude for Q4 slide

Possible sale still in play
SHAUN POLCZER 

Western Oil Sands Inc. on Thursday reported lower fourth-quarter results while it continues to consider options that could result in a sale of the company.

Despite the setback, blamed on falling crude prices, CEO Jim Houck described 2006 as an “excellent year” characterized by the first full turnaround of the Athabasca Oil Sands Project in which Western holds a 20 per cent stake.

Houck told analysts Western continues to pursue a transaction with a downstream partner that could result in an acquisition, merger or sale of the company.

“Given our growing oilsands production profile, Western continues to pursue downstream integration opportunities.”

The company made $26.81 million or 17 cents a share in the fourth quarter, a 38 per cent drop from $43.37 million or 27 cents a share in the prior-year period.

Full-year earnings of $63.37 million or 39 cents a share compared to $149.45 million or 93 cents per share in 2005.

Houck offered no assurances a deal is pending and said Western would hold fast to its present course by maintaining its interest in the Athabasca project expansion — which was formally approved in December — and embarking on a new exploration venture in Iraq. In addition, Western holds a 20 per cent stake in the proposed Chevron Canada Ells thermal development and is pursuing two additional in-situ projects.

“We believe Western has a robust and compelling business plan and will continue to move forward with our current business strategies,” he said.

Athabasca averaged 165,000 to 175,000 barrels per day (bpd) in the fourth quarter, lowering Western’s per-unit operating cost to $20.12 per barrel from $23.44 in the fourth quarter of last year.

Net of turnaround expenses amounting to $3.88 per barrel, Western’s full-year operating cost was $24.50 compared to $22.06 in 2005.

Athabasca reached peak-day records of 215,000 bpd during the quarter and is aiming for sustained production of 200,000 bpd. Western’s share of synthetic crude oil s a l e s a mounted to 45,594 bpd in the final three months.

Full-year revenues of $983.6 million were fuelled by a 21 per cent increase in Western’s perbarrel selling price of $60.51.

Andrew Potter, an analyst with UBS Canada in Calgary, said the results were generally “in line” with expectations with the exception of depreciation and future tax expense.

Potter said a possible sale of the company could fetch a substantial premium over Western’s present share price.

“Overall we continue to believe that the $45 bid by Royal Dutch Shell for Shell Canada implies approximately $38-$41 per share for Western — well above the current trading value.”

In October, Western committed $2.2 billion for its share of expanding Athabasca by 100,000 bpd starting in 2010. The project aims to reach 770,000 bpd over five subsequent stages.

The company also reported that proved plus possible reserves rose 86 per cent to 577 million barrels with an estimate of contingent reserves pegged at 891 million barrels.

Western’s shares have risen in recent weeks on speculation the company is about to be sold.

On Thursday they fell 28 cents in Toronto to $33.92, off a 52-week high of $38.09 set last April.

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