News
Attention Business/Financial Editors:
OPTI Canada Announces Third Quarter 2007 Results
TSX: OPC
CALGARY, Oct. 29 /CNW/ - OPTI Canada Inc. (OPTI) announced today the
Company's financial and operating results for the third quarter ended
September 30, 2007.
OPTI's Long Lake Project (the Project) will be the first to use
gasification technology in Canada's oil sands. This is anticipated to
substantially reduce the use of natural gas, the largest and most variable
operating cost component facing in-situ oil sands developers. An upgrader
based on our proprietary OrCrude(TM) process, when combined with commercially
available gasification and hydrocracking technologies, is expected to deliver
a high-value, premium synthetic crude. First production of Premium Sweet Crude
(PSC(TM)) from the Project is anticipated in mid-2008. The Company is also
advancing its future phases of growth via a multi-stage expansion strategy to
reach 180,000 barrels per day (bbl/d) of PSC(TM) production capacity net to
OPTI. Key recent developments include:
- Continued progress of Upgrader construction with an ongoing strong
safety record;
- Mechanical completion of the OrCrude(TM) and hydrocracker units as
well as main plant utilities; and
- Steam injection has commenced in 50 of 81 steam assisted gravity
drainage (SAGD) well pairs. The remaining well pairs are expected
to begin steaming in the next few weeks.
"We have achieved a key milestone in SAGD operations with steam
circulating in the reservoir and first bitumen returns," said Sid Dykstra,
Chief Executive Officer of OPTI. "Upgrader start-up is planned for mid-2008,
at which point Phase 1 of our Long Lake Project will begin to ramp-up to full
design capacity of approximately 60,000 bbl/d of high quality sweet synthetic
crude with a production life of 40 years."
FINANCIAL SUMMARY(i)
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Three months Nine months
ended ended Year ended
September September December
30, 2007 30, 2007 31, 2006
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Net loss $ (13) $ (15) $ (10)
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Capital expenditures incurred(ii) 239 817 1,109
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Working capital 97 97 554
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Shareholders' equity 1,410 1,410 1,444
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Common shares outstanding
(basic)(iii)(iv) 174.4 174.4 172.7
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(i) Tabular amounts in millions of dollars and shares as
applicable.
(ii) Non-cash additions are excluded.
(iii) After giving effect to the 2:1 share split to shareholders of
record on June 1, 2006.
(iv) Common shares outstanding after giving effect to common share
options and common share warrants would be approximately
187.1 million common shares.
PROJECT UPDATE
The SAGD plant is operational with 50 of 81 well pairs steaming. All well
pairs/pads are expected to be steaming within the next few weeks. During 2008,
SAGD volumes are expected to ramp-up to about 50 percent capacity by mid-2008
in preparation for Upgrader start-up. SAGD volumes are expected to reach full
design rates in 2009. The project is forecast to have production capacity of
72,000 bbl/d of bitumen from the 81 initial well pairs.
The OrCrude(TM) and hydrocracker units are now mechanically complete,
with commissioning activities underway in these areas of the plant including
chemical flushes and steam blows in preparation for the introduction of
hydrocarbons. Start-up of the utility boilers has been completed in
preparation for cold weather Upgrader start-up activities. Consistent with
previous guidance, completion of the gasifier and air separation units is
anticipated in the fourth quarter of 2007. Finalization of all detailed
engineering on the sulphur plant has resulted in some increases in quantities
and manhours needed to complete the plant, with completion still scheduled for
the first quarter of 2008.
Our current total cost estimate of the Project is between $5.8 billion
and $6.1 billion, or between $2.90 billion and $3.05 billion net to us. The
primary factor in maintaining cost and schedule on the Upgrader is labour
availability and productivity, and the Long Lake project experienced some
disruptions in labour availability and productivity in the third quarter
during and after labour contract negotiations. High construction activity
levels continue to impact the availability and cost of labour.
We anticipate first production of synthetic oil in mid-2008. The Upgrader
is expected to reach full production capability about 12 to 18 months after
start-up.
FUTURE PHASES
It is anticipated that we will proceed with an active winter delineation
program to further develop our resource base. We also expect to continue to
invest in engineering and planning for future phases of development. The
timing of Phase 2 sanctioning will be dependent on Phase 1 ramp up
performance, regulatory approval for the SAGD portion of the project, the
capital cost estimate, the commodity price environment as well as further
clarity on CO2 regulations. In addition, the Alberta government has announced
significant changes to the oil sands royalty regime. Increases in royalties
will impact the economics of our business and may impact the timing of future
investment decisions.
CORPORATE UPDATE
OPTI also announced today the appointment of Samuel Spanglet to its board
of directors, effective today. Mr. Spanglet was most recently the Vice
President Operations, Oil Sands and President, Albian Sands Energy Inc. at
Shell Canada. There, he oversaw all oilsands operations, including the
Scotford Complex and Albian Sands. Previously, he was the general manager of
the Scotford Complex, responsible for managing Shell's manufacturing in
Western Canada, as well as overseeing the successful integration of a newly
constructed upgrader. Mr. Spanglet also held other managerial positions within
Shell Canada during his 25 year tenure. Mr. Spanglet holds a Bachelor of
Science in chemical engineering from the Technion Institution of Technology in
Haifa, Israel, and is currently a member of the Board of Directors of ATCO
Power.
OPTI is also pleased to announce the appointment of David Schleen to Vice
President of Major Projects. In this capacity Mr. Schleen will have overall
responsibility for all project engineering and construction activities related
to OPTI's ongoing development of additional phases of growth upon completion
of his Phase 1 responsibilities. Mr. Schleen joined OPTI in mid-2002 and most
recently held the position of Project Director. Previously, he spent over 20
years with Suncor Energy Inc. in a variety of management and project
engineering roles, including Senior Project Manager on the Millennium
upgrader. Mr. Schleen holds a Bachelor of Engineering in Material Science from
the University of Western Ontario, and is a professional engineer registered
in Alberta.
FACTORS AFFECTING OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Investments to Date
-------------------
Our current total cost estimate of the Project is between $5.8 billion
and $6.1 billion, or between $2.90 billion and $3.05 billion net to us. We
have incurred $2.5 billion in cumulative expenditures to September 30, 2007 in
relation to this estimate. The table below identifies expenditures incurred by
us in the referenced periods for the Project, other oil sands development and
other capital expenditures.
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Three months Nine months
ended ended Year ended
September September December
$ millions 30, 2007 30, 2007 31, 2006
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Long Lake Project - Phase 1
Upgrader $ 117 $ 382 $ 476
SAGD 60 226 440
Sustaining capital and capitalized
operations 12 30 -
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Total Long Lake Project 189 638 916
Other oil sands activities 14 77 140
Other capital expenditures (primarily
capitalized interest) 36 102 53
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Total cash expenditures 239 817 1,109
Non-cash capital changes (36) (188) 66
Total capital expenditures $ 203 $ 629 $ 1,175
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Capital Expenditures
--------------------
During the three months ended September 30, 2007, we incurred capital
expenditures of $203 million excluding capitalized interest. Expenditures on
the Project of $189 million reflect primarily on-site construction. For SAGD
construction, these costs were primarily incurred in the central plant and
cogeneration facilities, start-up and commissioning costs and site-wide
services. For Upgrader construction, these costs were primarily incurred in
the OrCrude(TM), gasification, air separation, sulphur and utilities
facilities, and start-up and commissioning costs.
We also invested $14 million in other oil sands activities, $36 million
in other capital expenditures and had a reduction of $36 million related to
non-cash items. Expenditures of $14 million for other oil sands activities
during the period primarily relate to future phase engineering costs and
resource delineation. Other capital expenditures of $36 million relate to
$35 million of capitalized interest and standby charges in connection with our
long-term debt and $1 million of corporate capital costs. The $36 million
reduction of non-cash capital items relates primarily to a $104 million
capitalized net foreign exchange gain with respect to the re-measurement of
our U.S. dollar denominated long-term debt, offset by an $80 million
unrealized loss on our cross currency interest rate swaps. In addition, there
is a capitalized future tax recovery of $12 million associated with these
non-cash items.
Operation of the Project
------------------------
Once we complete construction of the Project and commence commercial
operations, we expect that our revenues from the Project will primarily
consist of PSC(TM) revenue and that our cash operating costs relating to the
Project will primarily consist of labour, maintenance and the purchase of
energy. Our results of operations will principally be driven by production
rates, plant capacity and reliability, oil prices and natural gas costs. Our
results of operations will also be affected by production factors, such as our
success in recovering bitumen using the SAGD process and the Project's steam
oil ratio.
(*) Revenues
As we have not yet completed the Project, our historical revenues consist
entirely of interest income. Interest income consists of interest on cash,
cash equivalents and short-term investments and is affected by average
balances of interest-bearing instruments and associated interest rates.
(*) Expenses
Our expenses have historically consisted of general and administrative
(G&A) expenses, amortization and accretion expenses and income taxes. G&A
expenses primarily consist of salaries and information technology costs. Prior
to 2007, amortization and accretion expenses primarily relate to amortization
of deferred financing charges. In 2007, the expense relates to amortization of
corporate assets. Until the second quarter of 2006, income taxes consisted of
capital taxes and future tax expense or recovery. Commencing in the third
quarter of 2006, income taxes consist entirely of future tax expense or
recovery. We do not currently pay income taxes. The timing of the payment of
income taxes in the future will be primarily influenced by the final cost of
the Project, income which is influenced by commodity prices, foreign exchange
rates, operating costs and future phase activities.
RESULTS OF OPERATIONS
Interest Income
---------------
For the three months ended September 30, 2007, interest income was
unchanged at $3 million. For the nine months ended September 30, 2007,
interest income increased to $11 million from $6 million in the corresponding
period in 2006. The increase was due to an increase in average cash and cash
equivalent balances as a result of the proceeds from debt issuances in
December 2006 and July 2007.
General and Administrative Expenses
-----------------------------------
For the three months ended September 30, 2007 and 2006, G&A expense
increased to $3 million from $2 million in the corresponding period in 2006.
For the nine months ended September 30, 2007, G&A expenses increased to
$10 million from $7 million in the corresponding period in 2006. The increase
was due to increased levels of corporate staff and information technology
expenditures.
Financing Charges
-----------------
For the three and nine month periods ended September 30, 2007, financing
charges are $11 million compared with nil in the same periods in 2006. The
$11 million expense is primarily in relation to issuance costs of our USD
$750 million senior secured notes. Financing charges in 2007 are expensed in
accordance with the adoption of the new Canadian accounting policy for
Financial Instruments.
Unrealized Loss on Commodity Contract
-------------------------------------
For the three months ended September 30, 2007, there was an unrealized
loss of $2 million. For the nine months ended September 30, 2007, there was an
unrealized loss of $3 million. Earlier in 2007, OPTI entered into put options
with respect to 5,500 barrels per day of production for 2008 with an exercise
price of USD $50 per barrel. The unrealized loss is due to the fair value
measurement of our commodity contracts, primarily as a result of an increase
in West Texas Intermediate (WTI) oil prices over the period of this option.
Amortization and Accretion Expenses
-----------------------------------
For the three months ended September 30, 2007, amortization and accretion
expenses were zero compared with $1 million in the same period in 2006. For
the nine months ended September 30, 2007, amortization and accretion expenses
were $1 million compared with $6 million in the same period in 2006.
Amortization and accretion in the prior periods primarily related to
amortization of deferred financing charges, which have been written off as of
January 1, 2007 as a result of the adoption of the new Canadian accounting
policy for Financial Instruments.
Taxes
-----
Future tax expense for the three months ended September 30, 2007 and 2006
is nil. Future tax expense for the nine months ended September 30, 2007 is nil
compared with a recovery of $8 million in the corresponding period in 2006
primarily due to a reduction in the corporate tax rate in 2006.
Cross Currency Swap
-------------------
OPTI is exposed to foreign exchange rate risk on our US dollar
denominated debt. To partially mitigate this exposure, we have entered into
USD $875 million of cross currency interest rate swaps to manage our exposure
to repayment and interest payments risk on our US dollar denominated long-term
debt. In line with the maturity date of the notes, the swaps provide for a
fixed CAD payment of $928 million in exchange for receipt of USD $875 million
in December 2014. The swaps also provide for semi-annual interest payments
until December 2014 at a fixed rate of 8.15 percent based on notional CAD $928
million of debt. This interest portion of the swaps essentially replaces our
semi-annual interest payments at a fixed rate of 8.25 percent based on
notional USD $875 million. This contract has not been designated as a hedge
for accounting purposes. As such, the fair value adjustment has been
capitalized as the underlying debt instrument is used to fund development of
our major projects. The value of the swaps was unfavourable to OPTI due to an
increase in the value of the Canadian dollar during the period. As a result,
OPTI has capitalized an unrealized loss in relation to the swaps of
$80 million during the period. This unrealized loss is more than offset by
gains on our US$ denominated debt.
Summary Financial Information
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$ million (rounded)
except per share
amounts 2007 2006 2005
-------------------------------------------------------------------------
Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4
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Interest
income $ 3 $ 2 $ 5 $ 4 $ 3 $ 2 $ 1 $ 2
Net earnings
(loss) (13) (2) - (11) (1) 4 (2) (1)
Earnings
(loss)
per share,
basic and
diluted $(0.07) $(0.01) $ - $(0.06) $ (-) $ 0.02 $(0.01) $(0.01)
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Quarterly variations in interest income are primarily the result of the
amount of cash and cash equivalents available for investments during the
applicable period. The amount of cash and cash equivalents is influenced by
the size and nature of financing activities and level of investing activities
during the period. Earnings have also been influenced by fluctuating interest
income, generally increasing levels of G&A and fluctuating tax expenses.
During the fourth quarter of 2006, we recorded a $15 million increase in the
amortization expense related to deferred financing charges, which increased
our loss during the period. In the third quarter of 2007, we expensed
financing charges of $11 million, which increased our loss during the period.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
---------
For the three months ended September 30, 2007, cash used in operating
activities was $12 million, cash provided by financing activities was
$241 million and cash used in investing activities was $233 million. This
resulted in a reduction in cash and cash equivalents during the period of $4
million compared with a decrease of $27 million in 2006. The decrease in cash
during the period was a result of continued oil sands development offset by a
net increase in long-term debt.
At September 30, our long-term debt consisted of USD $1,000 million of
8.25 percent and USD $750 million of 7.875 percent senior secured notes. We
also have an unutilized $500 million Revolving Credit Facility. Subsequent to
the period end, OPTI borrowed $60 million under this facility.
During the quarter, we used the proceeds from the issuance of the
USD $750 million notes to repay and cancel our USD $450 million Term Loan
Facility and the associated remaining interest reserve account funds of $56
million were returned to us. During the three months ended September 30, 2007,
the net increase in our long-term debt of $126 million was comprised of a net
increase related to USD denominated borrowings of $300 million, a reduction in
CAD denominated borrowings of $76 million offset by a decrease of $116 million
related to foreign exchange re-measurement.
The current balance of our interest reserve account is USD $208 million.
These funds will be used to fund interest payments on our notes until December
2008.
Our current total cost estimate of the Project is $5.8 billion to
$6.1 billion, or between $2.90 billion and $3.05 billion net to us. We have
incurred $2.5 billion in cumulative expenditures to September 30, 2007 in
relation to our share of this estimate and our share of remaining costs is
approximately $0.4 billion to $0.55 billion. These expenditures are expected
to be incurred through the second quarter in 2008.
Capital Resources
-----------------
At September 30, 2007, our capital resources included total working
capital of $97 million and our $500 million Revolving Facility. Working
capital consists of cash and short-term investments of $147 million, the
current portion of the interest reserve account of $138 million and a non-cash
working capital deficiency of $187 million. Of the non-cash working capital
deficiency of $187 million, $38 million relates to accrued, but unpaid
interest related to our notes. We also have $69 million in interest reserve
account funds not included in working capital. The total amount of the
interest reserve account, including the current portion, is expected to cover
all interest payments in respect of the notes until the end of 2008.
Our current capital resources include our available working capital, the
Revolving Facility and pre-funded interest account. OPTI currently has
sufficient funding through to complete construction and start-up of the
project at a capital cost of $5.8 billion. The pre-funded interest account is
sufficient to pay interest on the total USD $1.75 billion in notes outstanding
until December 2008. Capital to be invested in delineation drilling and future
phase development in 2008 will require additional funding. Based on current
cash flow expectations, we expect to be seeking additional financing within
the next six months. The timing, amount and nature of additional funding
requirements are dependent on the expected final cost of Phase 1 and the pace
of development in 2008. This funding may take the form of flow-through shares,
debt and/or equity.
Upon the commencement of commercial operations of Phase 1, which is
expected to be in the second quarter of 2008, operating cash flow will play an
important role in financing a portion of the costs of our multi-stage
expansion plans. Cash flow in the second half of 2008 will be impacted by the
timing of commencement of operations, the rate of ramp-up of operations during
the start-up phase, natural gas costs and oil prices.
We currently do not have the capital resources necessary to complete our
multi stage expansion plans. Our planned future expansions are expected to be
financed by a combination of cash flow from the Project and additional debt
and/or equity. The amount of debt and equity required will be impacted by
factors noted. There can be no assurance that we will be able to complete
these future financings with terms acceptable to us.
We have $202 million of call obligations. The option for exercise belongs
to us, and we do not expect to exercise our right to issue shares in relation
to the call obligations. The call obligations consist of unconditional and
irrevocable call options whereby OPTI, at our option, can require a
subscription for either a convertible preferred share or a common share for
the face amount of the call obligation. OPTI can exercise the call obligations
at any time until the earlier of completion of the Long Lake Project and
June 30, 2008. The exercise price per share of the call obligations is $2.20
per share and should OPTI exercise its option, it would result in the issuance
of 91.8 million additional common shares and gross proceeds of $202 million.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The following table shows our contractual obligations and commitments
during the next five years and thereafter as at September 30, 2007.
-------------------------------------------------------------------------
Less More
$ millions than 2-3 4-5 than
Total 1 year years years 5 years
-------------------------------------------------------------------------
Contracts and purchase
orders(i) $ 151 $ 150 $ 1 $ - $ -
Long-term debt(ii) 1,744 - - - 1,744
Capital leases(iii) 98 3 9 8 78
Operating leases(iii) 60 9 25 15 11
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Total commitments $ 2,053 $ 162 $ 35 $ 23 $ 1,833
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(i) Consists of our share of future commitments associated with
contracts and purchase orders in connection with the Project
and our other oil sands activities.
(ii) Consists of USD $750 million and USD $1,000 million senior
secured notes. The amounts represent only scheduled principal
repayments. In addition, we are contractually obligated for
interest payments on borrowings under our notes and standby
charges in respect of undrawn amounts under the Revolving
Facility which are not reflected in the above table. In respect
of the notes, annual interest of USD $142 million is due
until 2014.
(iii) Consists of our share of payments under our product
transportation agreements with respect to future tolls during
the initial contract term.
SHARE CAPITAL
At September 30, 2007, OPTI had 174,390,726 common shares, 3,104,000
common share warrants, and 6,539,316 common share options outstanding. The
common share options have a weighted average exercise price of $12.42 per
share and each common share warrant entitles the holder to purchase two common
shares at a price of $14.75 each.
At September 30, 2007, including instruments where the option to exercise
resides with the holder, OPTI's fully diluted shares outstanding was
187,138,042. This fully diluted number includes common shares outstanding,
common share options, and common share warrants.
CONFERENCE CALL
We will hold a conference call at 7:00 a.m. MDT (9:00 a.m. EDT) on
Monday, October 29, 2007 to review our third quarter results and progress on
the Long Lake Project. Sid Dykstra, President and Chief Executive Officer and
David Halford, Chief Financial Officer, will host the call. To listen to the
conference call, please dial:
(866) 249-1964 (North American Toll-Free)
(416) 644-3414 (Toronto or International)
Please reference the OPTI Canada conference call with Sid Dykstra when
speaking with the Operator.
A replay of the call will be available until November 13, 2007,
inclusive. To access the replay, call (416) 640-1917 or (877) 289-8525 and
enter passcode 21248977 followed by the pound (No.) sign. The webcast archive
will be available for 30 days on OPTI's website under "Webcasts and
Presentations" in the For Investors section.
ABOUT OPTI
OPTI Canada Inc. is a Calgary, Alberta-based company focused on
developing the fourth and next major integrated oil sands project in Canada,
the Long Lake Project, in a 50/50 joint venture with Nexen Inc. The first
phase of the Project consists of 72,000 barrels per day of SAGD (steam
assisted gravity drainage) oil production integrated with an OPTI-operated
upgrading facility, using OPTI's proprietary OrCrude(TM) process and
commercially available hydrocracking and gasification. Through gasification,
this configuration substantially reduces the exposure to and the need to
purchase natural gas. The Project is expected to produce 58,500 bbl/d of
products, primarily 39 degree API Premium Sweet Crude with low sulphur
content, making it a highly desirable refinery feedstock. OPTI's common shares
trade on the Toronto Stock Exchange under the symbol OPC.
FORWARD-LOOKING STATEMENTS
Certain statements contained herein are forward-looking statements,
including statements relating to: OPTI's operations; anticipated financial
performance; business prospects, expansion plans and strategies; OPTI's plans
and expectations concerning the use and performance of the OrCrude(TM) process
and other related technologies; the cost, development and operation of the
Long Lake Project and OPTI's relationship with Nexen Inc. Forward-looking
information typically contains statements with words such as "anticipate,"
"estimate," "expect," "potential," "could" or similar words suggesting future
outcomes. Readers are cautioned not to place undue reliance on forward-looking
information because it is possible that expectations, predictions, forecasts,
projections and other forms of forward-looking information will not be
achieved by OPTI. By its nature, forward-looking information involves numerous
assumptions, inherent risks and uncertainties. A change in any one of these
factors could cause actual events or results to differ materially from those
projected in the forward-looking information. Although OPTI believes that the
expectations reflected in such forward-looking statements are reasonable, OPTI
can give no assurance that such expectations will prove to be correct.
Forward-looking statements are based on current expectations, estimates and
projections that involve a number of risks and uncertainties which could cause
actual results to differ materially from those anticipated by OPTI and
described in the forward-looking statements or information. The
forward-looking statements are based on a number of assumptions which may
prove to be incorrect. In addition to other assumptions identified herein, we
have made assumptions regarding, among other things: market costs and other
variables affecting operating costs of the Project; the ability of the Long
Lake joint venture partners to obtain equipment, services and supplies,
including labour, in a timely and cost-effective manner; the availability and
costs of financing; oil prices and market price for the PSC(TM) output of the
OrCrude(TM) Upgrader; foreign currency exchange rates and hedging risks;
government regulations and royalty regimes; the degree of risk that
governmental approvals may be delayed or withheld; other risks and
uncertainties described elsewhere in this document or in OPTI's other filings
with Canadian securities authorities.
Readers should be aware that the list of factors, risks and uncertainties
set forth above are not exhaustive. Readers should refer to OPTI's current
Annual Information Form, which is available at www.sedar.com, for a detailed
discussion of these factors, risks and uncertainties. The forward-looking
statements or information contained in this news release are made as of the
date hereof and OPTI undertakes no obligation to update publicly or revise any
forward-looking statements or information, whether as a result of new
information, future events or otherwise, unless so required by applicable laws
or regulatory policies.
For further information: Alison Trollope, Investor Relations Manager, (403) 218-4705
