CALGARY — Opti Canada Inc. announced Wednesday it is being snapped up by China’s largest offshore energy producer for $2.1-billion, a week after the struggling oilsands company filed for court protection from creditors.
Through the deal, China National Offshore Oil Corp., or CNOOC, gets a 35 per cent stake in the troubled Long Lake oilsands project, which has fallen well-short of production targets since its late 2008 startup.
“CNOOC Ltd. is a technically experienced and well-capitalized company that is equipped to support further development at Long Lake and future expansions in the Canadian oilsands,” Opti president and CEO Chris Slubicki said in a statement.
Yang Hua, the CEO of CNOOC, said the transaction strengthens his company’s presence in the oilpatch, which already includes a 14.2 per cent stake in junior developer MEG Energy Corp. (TSX:MEG). It’s a relatively small footprint compared to other Chinese concerns like Sinopec and PetroChina.
“We believe that upside potential of the assets will facilitate local energy supply and our production growth in the long term,” Hua said,
Under terms of the agreement, CNOOC will pay $1.18 billion to lenders who hold Opti’s second lien notes and assume $825-million of first lien notes.
The Chinese company will also pay $37.5 million to backstop parties and $34 million to shareholders.
Calgary-based Opti (TSX:OPC) last week filed for a court-supervised restructuring, a process that outlined its ownership transfer to creditors. The oilsands developer has lost more than 90 per cent of its share-price value over the past year, and the Toronto Stock Exchange is in the midst of a delisting review.
One major challenge for Opti was the inability for Long Lake to churn out the 72,000 barrels per day it was designed to produce. In its most recent quarter, Long Lake only produced about 27,900 barrels daily.
Unlike Long Lake’s majority partner and operator, Nexen Inc. (TSX:NXY), Opti doesn’t have the cushion of other assets to bring in revenue. Calgary-based Nexen is a major offshore producer in the North Sea, Gulf of Mexico and West Africa, and has a large presence in northeastern British Columbia’s Horn River Basin.
Nexen shares gained 1.7 per cent, or 39 cents, to $23.16 in afternoon trading on the Toronto Stock Exchange.
While Opti was the one calling the shots in its strategic review process, Nexen sat down with bond holders and potential acquirers to provide information, said Pierre Alvarez, vice-president of corporate relations.
“I think there was considerable interest over the past 12 months, and at this point we’re pleased to see a transaction has been completed and we look forward to CNOOC as the partner,” he said.
Deep pocketed state-owned companies like CNOOC often take a longer view when it comes to investment than others in the private sector that must appease shareholders quarter-to-quarter.
CNOOC is likely looking past the short-term hiccups at Long Lake, as its owner — the Chinese government — seeks out new sources of energy to support its booming economy decades into the future.
Just last week — after the company filed for bankruptcy protection —Opti said bitumen production at the Long Lake will fall short of its 2011 output target due to lower than expected production so far this year.
At Long Lake, the companies pump steam deep underground to soften the peanut butter-thick bitumen so it can flow to the surface. The project is unique in that uses the dregs of each barrel of crude as a fuel source.
The Opti board of directors has voted unanimously in favour of the transaction with CNOOC, saying it is in the best interest of the company.
The sale is expected to close in the fourth quarter of 2011, pending regulatory approvals in Canada and China.
Wednesday’s deal continues China’s buying streak in the oilpatch.
The largest investment to date is Sinopec’s US$4.65-billion stake in the Syncrude Canada Ltd. partnership, which operates the world’s largest oilsands mine north of Fort McMurray, Alta. Sinopec also has a 50 per cent stake in Total E&P Canada’s Northern Lights project.
That would have been eclipsed by PetroChina’s $5.4-billion deal to buy half of some of Encana Corp. (TSX:ECA) B.C. and Alberta natural gas lands, but that arrangement was called off last month when the two firms failed to agree on how the assets would be operated.
China Investment Corp., a state-run sovereign wealth fund, has injected $1.25 billion into Penn West Energy Trust (TSX:PWT.UN).
PetroChina has a 60 per cent stake in two projects operated by Athabasca Oil Sands Corp. (TSX:ATH), which it bought for nearly $2 billion.