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The Fort Hills project is located in the Athabasca oil sands region approximately 90 kilometres north of Fort McMurray, Alberta.

SilverBirch Energy Corp. is still months away from being born, but already the man who is working to create Calgary's newest oil sands company is mulling whether he will need to sell it.

Part of the sale of UTS Energy to Total SA will involve creating SilverBirch, a new company that will hold a package of undeveloped UTS exploration properties separate from the proposed Fort Hills oil sands mine.

But markets have not traditionally placed much value in such lands, which remain years from producing oil, and analysts have already begun speculating that SilverBirch could present a gift-wrapped opportunity for a company like Teck Resources Ltd., which owns a 50-per-cent stake in many of the lands.

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Yet even as Will Roach, the chief executive officer of UTS, worked to convince investors of the value attached to those lands - which contain a substantial amount of bitumen - he also warned about what will happen if he is unsuccessful.

If SilverBirch "trades badly and the assets are worth more, it will get sold," Mr. Roach said. "I hope that doesn't happen."

According to UTS estimates, the SilverBirch properties will contain more than 2.5 billion barrels of recoverable bitumen resource - enough to put the holdings on par with, for example, Royal Dutch Shell's Muskeg River mine, or Suncor's Millennium mine.

That's worth, depending on which analyst you talk to, anywhere between 70 cents and $1.50 per UTS share. But UTS shares rose on Wednesday to about $3.45 a share, valuing the extra properties at under 40 cents, once Total's $3.08-per-share deal, and the $50-million that will be injected into SilverBirch, are accounted for.

This puts Mr. Roach in a familiar bind. He has, for years, attempted to convince investors that undeveloped lands have substantial value. His troubles in doing that led him to sell off chunks of land in deals that brought far higher dollar figures than shareholders have assumed.

Now he may find himself in a similar situation at SilverBirch. To emphasize the value in those assets, UTS released a timeline for their development, which will see SilverBirch request environmental approval to mine its Frontier and Equinox properties by the middle of next year and drill 50 holes in 2011 to prove up the amount of bitumen in some of its less-explored lands.

Investors like the strategy, especially since Fort Hills proved that obtaining an environmental permit for a project makes it substantially more attractive. UTS has 24 employees, and it's unlikely SilverBirch will have many more, meaning this a company that will generate value by increasing the desirability of its holdings rather than producing oil.

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"You can generate plenty of value by starting from the early stages, finding the resource, getting it permitted, getting it ready to go into the major build phase and then bringing in partners," said Robert Lyon, senior vice-president and portfolio manager at AGF Investments Inc.

That's if SilverBirch has enough time to do all of that. In a research note Wednesday, National Bank Financial analyst Peter Ogden pointed out that "SilverBirch has a natural buyer in Teck," which may be tempted to buy it if valuations remain low. Teck is a 50-per-cent partner in the Equinox and Frontier projects.

Mr. Roach, however, is hopeful that SilverBirch's stock will rise - especially now that the $1.5-billion sale to Total more firmly establishes UTS leadership as capable of creating value.

"SilverBirch has got more money and more barrels in it than [UTS did]when I started here six years ago," he said. "We've got a reputation, a team and a good following. So I'm pretty optimistic."

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About the Author
Asia Bureau Chief

Nathan VanderKlippe is the Asia correspondent for The Globe and Mail. He was previously a print and television correspondent in Western Canada based in Calgary, Vancouver and Yellowknife, where he covered the energy industry, aboriginal issues and Canada’s north.He is the recipient of a National Magazine Award and a Best in Business award from the Society of American Business Editors and Writers. More

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