Sunshine Oilsands Extends Sinopec Agreement
OREANDA-NEWS. December 03, 2013. Sunshine Oilsands Ltd. has extended an agreement by a year to talk about joint ventures with China’s Sinopec as it continues to seek financing to complete its West Ells thermal project.
President and CEO John Zahary said in an interview Thursday many company activities remain on hold while it awaits a cash injection from a strategic alternatives review it launched last summer.
Sinopec is one of Sunshine’s cornerstone investors, buying USD150 million worth of stock when it raised USD 570 million in its initial public offering on the Hong Kong Stock Exchange in 2012.
At the same time, Sinopec signed a memorandum of understanding to consider an oilsands joint venture with Sunshine.
“What they wanted at the time was the opportunity to sit down with us and look at negotiating a joint venture,” Zahary said. “That process has been ongoing.”
The agreement due to expire at the end of 2013 is now extended to Dec. 31, 2014. Only the date has been changed, said Zahary, adding there’s no particular reason a joint venture has not yet resulted.
In October, Sunshine announced a joint venture on its early stage Muskwa and Godin oilsands leases with Renergy Petroleum (Canada) Co., Ltd., an affiliate of Chinese conglomerate Changjiang Investment Group Co., Ltd.
Under the 50-50 partnership, Renergy is to invest all the capital up to USD 250 million and operate the initial 5,000-barrel-per-day project, using a thermal enhanced recovery technology supplied by an affiliate.
No detailed timeline was given.
Zahary said Thursday he can say little about Sunshine’s ongoing process to raise capital, noting that all options remain open and include sales of assets, joint ventures and debt and equity markets.
The company needs about USD 300 million to finish the first two 5,000-bpd phases at West Ells, its first project. Construction has been suspended since August and seasonality of work in northern Alberta could cause further delays and higher costs, Zahary said.
He said the market remains difficult for all pre-production oilsands companies looking to raise money due to uncertainty caused by new federal limits on foreign investments, doubts about pipeline access to markets, project regulatory risks and local opposition.
“There’s too much uncertainty in a world where lots of jurisdictions compete for capital and so the capital currently goes elsewhere,” he said.
In October, Sunshine’s USD 200-million bank credit line agreement was allowed to expire. It required the company meet financial targets to be drawn.
“It wasn’t drawable,” Zahary explained. “We were paying fees to leave it in place and we couldn’t access it so we terminated it. We’ll go back and get another one at another time.”
In a note last week after Sunshine released third-quarter results, analyst Mark Friesen of RBC Dominion Securities said the state of affairs is “quite negative” at Sunshine.
“At the end of Q3, Sunshine had negative working capital of USD 117.8 million and an accumulated deficit of USD 193.4 million,” he wrote. “We believe this puts significant financial stress on the company.”
Sunshine has over 400,000 hectares of oilsands leases in northern Alberta.
Its shares have been stuck below 30 cents since last spring. On Thursday, they closed at 24.5 cents, down half a penny.