News
Attention Business Editors:
OPTI Divests 15% Working Interest in its Oil Sands Joint Venture for $735 Million
TSX: OPC
CALGARY, Dec. 17 /CNW/ - OPTI Canada Inc. (OPTI) announced today that it
has entered into a definitive agreement to sell a 15% working interest in all
its joint venture assets to Nexen Inc. (Nexen) for $735 million. Following the
transaction OPTI will have a 35% working interest in all the joint venture
assets, including Phase 1 of the Long Lake Project (the Project), future phase
reserves and resources, and future phases of development. Nexen will have a
65% working interest and will be the operator of both the Steam Assisted
Gravity Drainage (SAGD) and Upgrader facilities for Phase 1 and future phases.
It is anticipated that after a transition period Nexen will make employment
offers to OPTI's operating and Project staff. Closing is expected to occur in
late January 2009 and is subject to approval from a majority of OPTI's bank
lenders in its $500 million revolving credit facility and customary closing
conditions, including regulatory approvals.
"This is the conclusion of our previously announced process to review
2009 financing options," said Sid Dykstra, President and Chief Executive
Officer. "OPTI is pleased to announce this transaction with our current
partner and, importantly, to retain a significant working interest in Phase 1
as well as in all future phases of development. These funds, combined with
reduced capital expenditures, position the Company to withstand lower
commodity prices and the significant uncertainty in current financial markets
while preserving the opportunity for shareholders to benefit from future
development of OPTI's significant resource base."
2009 Capital Expenditure Plans
------------------------------
OPTI's capital expenditure plans for 2009 will be significantly reduced
as a result of this transaction to approximately $114 million for our new
working interest share. Approximately $71 million of 2009 capital expenditures
relate to OPTI's share of costs for Long Lake Phase 1. Phase 1 expenditures
will be primarily directed towards sustaining capital for the SAGD operation,
including the drilling of the first sustaining well pad, sustaining capital
for the Upgrader, and costs associated with start-up of the SAGD
debottlenecking project. As previously announced, final construction
completion of the ash processing unit has been deferred to 2010 in order to
avoid interference with initial Upgrader operations and to reduce 2009 capital
expenditures.
In light of the current global economic situation and reduced commodity
prices, the joint venture partners have agreed to reduce near term capital
expenditures on future phases of development. OPTI anticipates remaining
capital expenditures of approximately $43 million in 2009 primarily to advance
Phase 2 planning, drill delineation wells in the Phase 2 area to define future
horizontal well locations, and to advance regulatory work for the Phase 3
upgrader. The partners have also agreed that Phase 2 will not be presented for
approval prior to mid-2010.
Reserves Update
---------------
McDaniel & Associates (McDaniel), our reserves and resource evaluator,
has prepared a report evaluating the bitumen reserves and synthetic oil
reserves of the Long Lake leases effective December 31, 2007.
The McDaniel evaluation of our Long Lake Phase 1 and 2 lands recognizes
the impact of upgrading on the resources. Most of the raw bitumen will be
upgraded and sold as Premium Sweet Crude (PSC(TM)) and butane, and is shown as
synthetic crude oil or butane reserves. Bitumen will be sold upon start-up of
the SAGD operations, prior to Upgrader start-up, and thereafter during periods
of Upgrader downtime, and is shown as bitumen reserves. The following table
shows OPTI's 50% working interest in the raw bitumen reserves and the
corresponding sales volumes at December 31, 2007 prior to taking account of
the sale of the 15% working interest.
2007
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Raw
Bitumen Gross Sales Volumes
-------------------
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All volumes are millions
of barrels PSC(TM) Bitumen Butane
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Proved(1) 268 202 16 3
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Proved plus Probable(2) 803 620 29 9
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Proved plus Probable
plus Possible(3) 941 729 31 10
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The following table shows OPTI's 35% working interest in the raw bitumen
reserves and the corresponding sales volumes as at December 31, 2007 after
taking account of the sale of the 15% working interest.
2007 (proforma the sale of the 15% working interest)
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Raw
Bitumen Gross Sales Volumes
-------------------
-------------------------------------------------------------------------
All volumes are millions
of barrels PSC(TM) Bitumen Butane
-------------------------------------------------------------------------
Proved(1) 188 141 11 2
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Proved plus Probable(2) 562 434 20 6
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Proved plus Probable
plus Possible(3) 659 510 22 7
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Notes:
1. Proved reserves are those reserves that can be estimated with a high
degree of certainty to be recoverable. It is likely that the actual
remaining quantities recovered will exceed the estimated proved reserves.
2. Probable reserves are those additional reserves that are less certain
to be recovered than proved reserves. It is equally likely that the
actual remaining quantities recovered will be greater or less than the
sum of the estimated proved plus probable reserves.
3. Possible reserves are those additional reserves that are less certain
to be recovered than probable reserves. There is a 10 percent probability
that the remaining quantities actually recovered will be greater than the
sum of proved plus probable plus possible reserves.
Resources Update
----------------
In addition to estimating our reserves, McDaniel has estimated bitumen
resources on all of OPTI's lands including the Long Lake, the Leismer and the
Cottonwood Leases. A summary of the additional resource estimates as at
December 31, 2007, on a 50% working interest basis prior to taking into
account the 15% working interest sale is shown below:
2007
-----------------------------------------------------
Raw
All volumes are millions of barrels Bitumen(1)
-----------------------------------------------------
Remainder of Long Lake leases(2) 704
-----------------------------------------------------
Leismer(2) 960
-----------------------------------------------------
Cottonwood(3) 542
---
-----------------------------------------------------
Total 2,206
-----
-----------------------------------------------------
The following table shows OPTI's 35% working interest in the additional
resource estimates after taking account of the sale of the 15% working
interest.
2007 (proforma the sale of 15% working interest)
-----------------------------------------------------
Raw
All volumes are millions of barrels Bitumen(1)
-----------------------------------------------------
Remainder of Long Lake leases(2) 493
-----------------------------------------------------
Leismer(2) 672
-----------------------------------------------------
Cottonwood(3) 379
---
-----------------------------------------------------
Total 1,544
-----
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Notes:
(1) These estimates represent the "best estimate" of our resources,
are not classified or recognized as reserves, and are in addition
to our disclosed reserve volumes. These resource estimates are
categorized primarily as Contingent Resources, with some
categorized as Prospective Resources. See Notes 2 and 3 below.
Contingent Resources are those quantities of petroleum estimated,
as of a given date, to be potentially recoverable from known
accumulations using established technology or technology under
development, but which are not currently considered to be
commercially recoverable due to one or more contingencies.
Contingencies may include factors such as economic, legal,
environmental, political, and regulatory matters, or a lack of
markets. It is also appropriate to classify as Contingent
Resources the estimated discovered recoverable quantities
associated with a project in the early evaluation stage. There is
no certainty that it will be commercially viable to produce any
portion of the Contingent Resources.
Prospective Resources are those quantities of petroleum
estimated, as of a given date, to be potentially recoverable from
undiscovered accumulations by application of future development
projects. Prospective resources have both an associated chance of
discovery and a chance of development. There is no certainty that
any portion of the Prospective Resources will be discovered. If
discovered, there is no certainty that it will be commercially
viable to produce any portion of the resources.
(2) The resource estimates for Leismer and Long Lake are categorized
as Contingent Resources. These volumes are classified as
resources rather than reserves primarily due to less delineation
and the absence of regulatory approvals, detailed design
estimates and near-term development plans.
(3) The estimate for Cottonwood is categorized as both Contingent and
Prospective Resources. The estimate of 542 million barrels prior
to the sale of the 15% working interest is comprised of 247 MMbbl
of Contingent Resources and 295 MMbbl of Prospective Resources.
After taking account for the sale of the 15% working interest,
the estimate would be comprised of 173 MMbbl of Contingent
Resources and 206 MMbbl of Prospective Resources. These
Contingent Resource volumes are classified as resources rather
than reserves primarily due to less delineation; the absence of
regulatory approvals, detailed design estimates and near-term
development plans; and less certainty of the economic viability
of their recovery. In addition to those factors that result in
Contingent Resources being classified as such, Prospective
Resources are classified as such due to the absence of proximate
delineation drilling.
Operational Update
------------------
Based on the volume of steam we have been able to inject, reservoir
performance has been consistent with our expectations. Bitumen production
volumes averaged 15,100 bbl/d in the month of October and reached as high as
over 20,000 bbl/d in the first half of November. However, more recently steam
capacity has been limited as we work through the transition from the use of
natural gas to a combination of natural gas and synthesis gas (syngas) and
continue to optimize the water treatment process. Lower steam volumes affect
operating pressures which consequently leads to flat or declining production
volumes. In addition, one SAGD well pad is currently shut in due to a damaged
steam line with repairs expected to be completed in late December. As a result
of these issues, average volumes for November were 16,100 bbl/d. On December
7th we experienced a plant wide power outage that impacted operations during a
period of cold weather. December production is anticipated to be lower than
November volumes as all the wells were shut in after the power outage and are
in the process of being brought back on stream.
Prior to the power outage the Upgrader complex was ready to produce the
initial barrels of PSC(TM) from the hydrocracker. Two gasifier trains have
been operating producing syngas, which was sweetened and used in the SAGD
facility. Hydrogen has been produced and used in the preparation of the
hydrocracker. The sulphur plant produced sulphur and the air separation plant
has passed the majority of its performance tests. Re-starting the Upgrader is
underway with first PSC(TM) now expected by the end of December. Based on
industry experience, it is anticipated that the Upgrader will ramp up to full
design rates of approximately 58,500 bbl/d of high quality, 39 degree API
PSC(TM) and other products in 12 to 18 months. The Project is expected to
operate at this rate without production decline for approximately 40 years.
Financial Update
----------------
As a result of lower than forecast SAGD production volumes, delays in
start-up of the Upgrader and dramatically reduced commodity prices, the
Company expects operating cash flow in the first quarter of 2009 to be lower
than previously assumed. As a result, in the absence of completing this
transaction or another transaction with significant cash proceeds and the
associated amendments to its financing covenants, the Company would expect to
be unable to meet its financial covenant ratio with respect to first lien debt
to earnings before interest, taxes and depreciation (EBITDA) commencing in the
first quarter of 2009. In addition, assuming continued reduced cash flows from
these operational factors, then in the absence of this transaction, we expect
a significant increase in the risk that the Company will be unable to fund the
maturity of its $150 million revolving credit facility and its US$71 million
high yield interest payment in June 2009.
The transaction, if completed as proposed, would provide additional
liquidity and significantly mitigate the likelihood of an impairment of
covenants included in the Company's revolving credit facilities. A condition
of closing of the transaction is the requirement to gain the consent of the
majority of its lenders in the Company's $500 million revolving credit
facility. This consent includes: approval of the sale; and amendment to our
financial maintenance covenants which are senior debt to EBITDA and debt to
capitalization ratios. In the absence of an amendment to these financial
maintenance covenants, the Company would be challenged to meet its debt to
capitalization ratio after consideration of the expected book capitalization
adjustment arising from the transaction (see below).
Net proceeds of the transaction are expected to be used approximately as
follows:
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In millions of dollars
-------------------------------------------------------------------------
Gross proceeds from working interest sale $735
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Uses
-------------------------------------------------------------------------
Transaction costs 11
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Repay and cancel $150 million revolving credit facility 145
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Partial repayment of $500 million revolving credit facility 150
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Pre-funding of portion of 2009 capital expenditure program 85
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Funds for general corporate purposes 344
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A primary use of proceeds is expected to be to reduce the Company's debt
outstanding under its revolving credit facilities including repayment and
cancellation in full of the Company's $150 million revolving credit facility,
a partial repayment of amounts owing on the Company's $500 million revolving
credit facility, and a permanent reduction of that facility to $350 million.
OPTI has agreed to participate in the 2009 joint venture capital programs and
will pre-fund $85 million of the program. Expenditures in 2009 in excess of
$85 million for our working interest share will be funded by OPTI.
As a result of a completed transaction, OPTI would anticipate a loss on
book value of asset sold pursuant to the transaction of approximately $300
million. The final determination of the loss will depend on the final purchase
price allocation.
Advisors
--------
TD Securities Inc. acted as lead financial advisor to OPTI with respect
to this transaction and provided a fairness opinion to the Company's Board of
Directors. OPTI also retained Credit Suisse as financial advisor on this
transaction. Peters & Co. Limited was retained to provide an independent
report to the Board on various financial and strategic considerations.
Conference Call
We will hold a conference call at 3:00 p.m. MT (5:00 p.m. ET) today,
Wednesday December 17, 2008 to discuss this transaction. 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:
(800) 731-6941 (North American Toll-Free)
(416) 644-3423 (Alternate)
Please reference the OPTI Canada conference call with Sid Dykstra when
speaking with the Operator.
A replay of the call will be available until December 31, 2008,
inclusive. To access the replay, call (416) 640-1917 or (877) 289-8525 and
enter passcode 21292840, followed by the pound (No.) sign.
This call will also be webcast, and can be accessed on OPTI Canada's
website under "Presentations and Webcasts" in the "For Investors" section. The
webcast will be available for 30 days.
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 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 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. On a 100 percent basis,
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.
Additional information regarding the Long Lake Project is available at
http://www.longlake.ca.
Forward-Looking Statements
Reserves and Resources Estimates: The estimates of resources and of
economically recoverable bitumen reserves contained herein are forward-looking
statements. The estimates are based upon a number of factors and assumptions
made as of the date on which the reserve and resource estimates were
determined, such as geological and engineering estimates which have inherent
uncertainties, the assumed effects of regulation by governmental agencies and
estimates of future commodity prices and operating costs, all of which may
vary considerably from actual results. All such estimates are, to some degree,
uncertain and classifications of reserves are only attempts to define the
degree of uncertainty involved. The estimates contained herein with respect to
reserves and resources that may be developed and produced in the future have
been based upon volumetric calculations and upon analogy to similar types of
reserves and resources, rather than upon actual production history. Estimates
based on these methods generally are less reliable than those based on actual
production history. Subsequent evaluation of the same reserves and resources
based upon production history will result in variations, which may be
material, in the estimated reserves and resources.
Certain statements contained herein are forward-looking statements,
including statements relating to: the completion of the proposed working
interest sale to Nexen and use of proceeds therefrom; OPTI's operations;
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 "intends,"
"anticipate," "estimate," "expect," "potential," "could," "plan" 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 document 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.
%CIK: 0001177446
For further information: Alison Trollope, Investor Relations Manager, (403) 218-4705, OPTI Canada Inc., Suite 2100, 555 - 4th Ave. S.W., Calgary, Alberta, Canada, T2P 3E7
