OPTI Canada Inc. (TSX VENTURE:OPC) (OPTI or the Company)
announced today the Company's financial and operating results for
the quarter ended September 30, 2011.
"Long Lake performed positively over the third quarter,
achieving the highest-to-date quarterly bitumen production average
of 29,500 barrels per day (gross). Current production is around
32,000 barrels per day (gross)," said Chris Slubicki, President and
Chief Executive Officer of OPTI.
"The acquisition of OPTI by subsidiaries of CNOOC Limited is
proceeding, and we look forward to the expected closing of the deal
in November. The parties are prepared to complete the acquisition
promptly following the receipt of approvals from Industry Canada
and the People's Republic of China."
CORPORATE UPDATE
Following an extensive strategic alternatives review process
that was initiated by the Company in November 2009 OPTI announced
on July 13, 2011 that it had made an application for an order under
the Companies' Creditors Arrangement Act (the CCAA), commencing a
creditor protection proceeding (the CCAA Proceeding) in the Court
of Queen's Bench of Alberta (the Court). OPTI applied to the Court
and received an order staying all claims and actions against OPTI
and its assets until August 12, 2011 (the Initial Order). This
Initial Order precluded parties from taking any action against OPTI
for breach of contractual or other obligations during the stay
period except for the exercise of certain set-off rights or
termination of certain "eligible financial contracts" (such as
OPTI's foreign exchange derivative instruments agreements). The
purpose of the Initial Order was to provide OPTI with relief
designed to allow management to complete a restructuring plan while
conducting business in the ordinary course. The initial stay period
was extended until November 4, 2011 and it is expected that the
Court will continue to extend the stay period as may be
appropriate.
The restructuring plan put forth in OPTI's initial application
(the Recapitalization) would convert the Company's US$1 billion
8.25 percent Senior Secured Notes due 2014 and US$750 million 7.875
percent Senior Secured Notes due 2014 (collectively, the Second
Lien Notes) into common equity in the form of new common shares of
OPTI. In addition, a new common share investment of US$375 million
would be offered to all holders of Second Lien Notes (the Second
Lien Noteholders) via a rights offering. Certain Second Lien
Noteholders supporting the Recapitalization (the Supporting
Noteholders) would act as a backstop to the rights offering. As a
key condition of the Recapitalization, the Company's US$300 million
9.75 percent First Lien Notes due 2013 and its US$525 million 9.00
percent First Lien Notes due 2012 (collectively, the First Lien
Notes) would be refinanced prior to closing. The new secured debt
amount of this refinancing would be determined in accordance with
the terms of an agreement (the Support Agreement) with the
Supporting Noteholders and would not be less than US$1.1 billion.
Holders of OPTI's existing common shares would be issued warrants
to acquire new common shares of the Company and all of OPTI's
existing common shares would be cancelled. The shareholder warrants
would be issued for the purchase of approximately 25.5 million new
common shares (in the aggregate approximately 20 percent of the
Company's post-restructuring new common shares). Each warrant would
be exercisable for one new common share with a strike price of
US$22.27 per share and would expire seven years after the
implementation date of the Recapitalization.
On July 20, 2011 OPTI announced that it had entered into an
arrangement agreement with CNOOC Luxembourg S.a r.l, an indirect
wholly-owned subsidiary of CNOOC Limited pursuant to which indirect
wholly-owned subsidiaries of CNOOC Limited will acquire the Second
Lien Notes and all of the outstanding shares of OPTI (the
Acquisition). The total value of the Acquisition is approximately
US$2.1 billion. OPTI's Board of Directors determined that the
Acquisition is in the best interest of the Company, recommended
that Second Lien Noteholders support the Acquisition, and voted
unanimously in favour of the Acquisition.
Pursuant to the Acquisition, CNOOC Limited, through its
subsidiaries, will:
-- acquire OPTI's Second Lien Notes for a net cash payment of US$1,179
million and pay US$37.5 million to backstop parties;
-- acquire all existing issued and outstanding common shares of OPTI for a
cash payment of approximately US$34 million (equal to US$0.12 per common
share); and
-- assume, in accordance with the notes' indentures, the Company's First
Lien Notes.
On July 22, 2011 OPTI presented the Court with a plan to pursue
the Acquisition and, in the event that Acquisition was not
implemented, then, subject to certain conditions, OPTI would
complete the Recapitalization. This plan is referred to as the
Master Plan. The Master Plan provides for the implementation of
either the Acquisition or the Recapitalization through concurrent
proceedings (the Proceedings) under the CCAA and the Canada
Business Corporations Act (the CBCA). The Court directed OPTI to
present its Master Plan to the Second Lien Noteholders.
On September 7, 2011 at a meeting of Second Lien Noteholders,
the Master Plan was approved by a majority of Second Lien
Noteholders, present in person or by proxy, who collectively held
99.97 percent of the aggregate principal amount of outstanding
Second Lien Notes that were voted at the meeting. On the same date,
the Court granted an order (the Sanction Order) approving the
Company's Master Plan pursuant to the CCAA and the CBCA. The
Sanction Order declares that the Master Plan is approved and
declared to be substantively and procedurally fair and reasonable
to the Second Lien Noteholders and existing OPTI shareholders and
is in the best interests of OPTI and all affected parties. The
Sanction Order also authorized and directed the Company to take all
steps and actions necessary or appropriate to implement the terms
of the Master Plan.
We expect that the Acquisition will be implemented in November
2011, following the receipt of all regulatory approvals and after
all other conditions to closing have been satisfied or waived. A
no-action letter, satisfying a condition to closing, was issued
from the Commissioner of Competition under the Competition Act of
Canada on October 19, 2011. OPTI and subsidiaries of CNOOC Limited
are prepared to complete the Acquisition promptly following the
receipt of approvals from the Minister of Industry under the
Investment Canada Act and the National Development and Reform
Commission of the People's Republic of China. In addition, Equity
Financial Trust Company has been retained to carry out certain
closing activities relating to the Acquisition in accordance with
the Master Plan. Implementation of the Acquisition must occur on or
before December 1, 2011.
OPTI intends to apply for a stay extension, beyond November 4,
2011, with the Court on November 1, 2011 in order to complete the
Acquisition or the Recapitalization. The Company will continue to
comply with all of the terms set forth in the Master Plan and the
Support Agreement with Supporting Noteholders.
Readers should refer to "Risk Factors" at the end of this
MD&A and in the Information Circular in respect of the Master
Plan for specific risk factors associated with the Acquisition, the
Recapitalization and the Proceedings. OPTI continues operations
with assistance of the Court-appointed Monitor, Ernst & Young
Inc. (the Monitor). Information on OPTI's CCAA Proceeding can be
found on the Company's website or through the Monitor at
www.ey.com/ca/opti.
Listing on TSXV
During the third quarter of 2011 the Company's listing
application for the TSX Venture Exchange (TSXV) was approved. The
common shares of OPTI commenced trading on the TSXV (symbol: OPC)
effective upon the open of trading on August 29, 2011.
The Company's listing on the TSXV followed OPTI's delisting from
the Toronto Stock Exchange (TSX) effective at the close of markets
on August 26, 2011 as OPTI no longer satisfied the continued
listing requirements of the TSX as a result of OPTI's proceeding
under the CCAA announced on July 13, 2011.
OPERATIONAL UPDATE
Long Lake bitumen production for the third quarter of 2011
averaged approximately 29,500 barrels per day (bbl/d) (10,300 bbl/d
net to OPTI), a six percent increase over the second quarter
average of approximately 27,900 bbl/d (9,800 bbl/d net to OPTI).
Steam injection for the third quarter averaged approximately
144,000 bbl/d, lower than the previous quarter average of 152,000
bbl/d. The decrease was attributable to wells requiring less steam
to maintain target conditions, combined with scheduled maintenance
on the third hot lime softener and the second Cogeneration unit
which occurred in August. Operating costs remained high during the
quarter due to this maintenance as well as continuing initiatives
to increase plant reliability and improve well performance.
Production in September was approximately 30,500 bbl/d (10,700
bbl/d net to OPTI), with August and September producing the highest
monthly bitumen averages to-date. Overall steam requirements are
trending down as steam-to-oil-ratio (SOR) improves with well
optimization and steam chamber maturity. Our recent all-in SOR
average is approximately 4.7 including steam to wells early in the
ramp-up cycle. It is expected that the long-term SOR at Long Lake
will range between 3.0 and 4.0. We do not expect to reach this
long-term SOR range until 2012 or later. The SOR for our original
well pairs is expected to be in the high end of this range.
The Upgrader was recently shut down for repairs to the air
separation unit. We anticipate that this is a short term issue and
expect to start up the Upgrader once repairs are complete. With the
natural gas pipeline installed earlier this year, we expect to be
able to produce and sell bitumen during this downtime.
Upgrader units performed consistently during the quarter,
processing the majority of our produced bitumen as well as
approximately 3,500 bbl/d (1,200 bbl/d net to OPTI) of
externally-sourced bitumen. Our Upgrader on-stream time and Premium
Sweet Crude (PSC(TM)) yields during the quarter were consistent
with the previous quarter, averaging 98 percent and 70 percent
respectively. It is expected that yields will increase to the
design rate of 80 percent as operations are optimized. For the
remainder of 2011 we expect to purchase externally-sourced bitumen
when economically beneficial. A three-week turnaround period at
Long Lake is planned for the second quarter of 2012. This will
allow for completion of a number of scheduled maintenance
activities which will result in temporarily reduced bitumen
production.
A total of 89 well pairs at Pads 1 through 11 are capable of
production. Drilling on Pad 12 was completed during the quarter and
drilling on Pad 13 is proceeding as planned and is expected to be
completed by the end of the year. These pads are located in
geologically high-quality areas of the reservoir and are scheduled
to come on-stream in 2012 and expected to ramp-up over the
following 18 months.
The operator is currently working through engineering and
regulatory processes for Pads 14 and 15 at Long Lake which could be
available for production as early as 2014. Beyond the Long Lake
pads, similar work is ongoing to potentially drill 25 to 30 wells
on the Kinosis lease. Preliminary optimization plans consider
adding once-through steam generation capacity as well as advancing
bitumen production from Kinosis which would be tied-in to the Long
Lake Upgrader.
Effective April 1, 2011 OPTI exercised a deferred payment
funding option for all capital expenditures relating to Kinosis.
This funding option has been extended to the end of December 2011.
We retain all of our other rights under the joint venture agreement
and we have the discretion to resume funding of our proportionate
share of Kinosis costs. OPTI's proportionate share of incurred
costs to September 30, 2011 is approximately $10 million (plus
applicable interest).
The performance of SAGD operations and the Upgrader may differ
from our expectations. There are a number of factors related to the
characteristics of the reservoir and operating facilities that
could cause bitumen and PSC(TM) production to be lower than
anticipated. See "Risk Factors - Operating Risks" in our
management's discussion and analysis for the year ended December
31, 2010.
FINANCIAL HIGHLIGHTS
Basis of Presentation
As of January 1, 2011 OPTI adopted International Financial
Reporting Standards (IFRS) as a public reporting issuer as
prescribed by the Canadian Institute of Chartered Accountants
(CICA) Accounting Standards Board. Financial performance has been
measured according to IFRS as of January 1, 2010. Results for
periods prior to January 1, 2010 have been measured according to
Canadian Generally Accepted Accounting Principles (Canadian GAAP)
as it existed at that time. For further details see Note 2
"Creditor Protection and Going Concern Uncertainty" of the
accompanying condensed interim financial statements.
----------------------------------------------------------------------------
Three months Nine months
ended ended Year ended
September 30 September 30 December 31
----------------------------------------------------------------------------
In millions 2011(1) 2011(1) 2010(1)
----------------------------------------------------------------------------
Net loss $ (290) $ (371) $ (227)
Net field operating loss (0) (6) (65)
Working capital(deficiency) (2,908) (2,908) 64
Oil sands expenditures
Property, plant and equipment 37 107 92
Exploration and evaluation - 25 4
----------------------------------------------------------------------------
Total oil sands expenditures ((2)) 37 132 96
Shareholders' equity $ 749 $ 749 $1,120
Common shares outstanding (basic)
((3)) 282 282 282
----------------------------------------------------------------------------
Notes:
(1) As prepared under IFRS.
(2) Capital expenditures related to the Long Lake and future
expansion developments. Capitalized interest and non-cash additions
or charges are excluded.
(3) Common shares outstanding at September 30, 2011 after giving
effect to the exercise of stock options would be approximately 285
million common shares.
FINANCIAL PERFORMANCE
----------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
$ millions, except per
share amounts 2011 2010 2011 2010
----------------------------------------------------------------------------
Revenue, net of
royalties $ 87 $ 59 $ 245 $ 170
Expenses
Operating expense 59 54 191 159
Diluent and feedstock
purchases 23 21 47 60
Transportation 5 4 13 12
----------------------------------------------------------------------------
Net field operating loss (0) (20) (6) (61)
Corporate expenses
Borrowing costs, net 51 48 149 130
General and
administrative 3 4 9 11
Realized loss on
derivative 110 3 110 55
instruments
----------------------------------------------------------------------------
Loss before non-cash
items (164) (75) (274) (257)
Non-cash items
Foreign exchange loss
(gain) 215 (77) 141 (46)
Unrealized (gain) loss
on derivative (105) 14 (89) (37)
instruments
Depletion and
depreciation 16 14 45 37
----------------------------------------------------------------------------
Net loss $ (290) $ (26) $ (371) $ (211)
----------------------------------------------------------------------------
Loss per share, basic
and diluted $ (1.03) $ (0.09) $ (1.32) $ (0.75)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Third Quarter Operational Overview
We define our net field operating margin or loss as sales
related to petroleum products net of royalties and power sales
minus operating expenses, diluent and feedstock purchases, and
transportation costs. See "Non-GAAP Financial Measures."
Net field operating loss was negligible during the three months
ended September 30, 2011 compared to a loss of $20 million during
the same period in 2010. For the nine months ended September 30,
2011 our net field operating loss was $6 million compared to a loss
of $61 million during the same period in 2010. The reduced loss in
the first nine months of 2011 was due to improved plant
reliability, higher SAGD production levels and higher West Texas
Intermediate (WTI) prices.
On-stream factor is a measure of the proportion of time that the
Upgrader is producing PSC(TM) and is calculated as the percentage
of hours that the Hydrocracker Unit in the Upgrader is in
operation. When the Upgrader is not in operation, results can be
adversely affected by the requirement to purchase diluent, which is
blended with produced bitumen to generate a sales product called
Premium Synthetic Heavy (PSH). Revenue per barrel is lower for PSH
than for PSC(TM). The majority of SAGD and Upgrader operating costs
are fixed, so we expect that rising SAGD production volumes and a
continued high Upgrader on-stream factor will lead to improvement
in our net field operating margin. This expected production
improvement would result in higher PSC(TM) sales. PSC(TM) yields
represent the volume percentage of PSC(TM) generated from
processing bitumen through the Upgrader.
The Upgrader on-stream factor for the three months ended
September 30, 2011 was 98 percent, consistent with the previous
quarter. Average PSC(TM) yields for the third quarter of 2011 were
70 percent, also consistent with the previous quarter. For the
third quarter of 2011 our share of PSC(TM) sales decreased to 6,900
bbl/d at an average price of $96/bbl, from 8,600 bbl/d at an
average price of $109/bbl in the previous quarter. Third-party
bitumen purchases increased during the third quarter to 3,500
bbl/d, from 3,200 bbl/d in the previous quarter due to favourable
economic conditions surrounding upgrading bitumen to PSC(TM). PSH
sales during the third quarter increased to 3,900 bbl/d at an
average price of $71/bbl, from 1,200 bbl/d at an average price of
$80/bbl in the previous quarter. The decrease in PSC(TM) sales is
mainly due to the increased production of PSH where PSC(TM) is used
as diluent. PSH sales increased due to temporary restrictions in
Upgrader throughput ability, necessitating the production of
bitumen blend rather than processing the bitumen into PSC(TM).
Power sales volumes decreased to 14,400 megawatt hours (MWh) from
29,700 MWh in the previous quarter but the average selling price
increased to $63/MWh from $42/MWh. During the third quarter,
diluent and feedstock purchases increased to $23 million from $21
million in the previous quarter. In the third quarter of 2011 we
had diluent purchases of $4 million, an increase from nil in the
previous quarter to facilitate PSH production when Upgrader
throughput was restricted.
Revenue
For the three months ended September 30, 2011 we earned revenue
net of royalties of $87 million compared to $59 million for the
three months ended September 30, 2010. Revenue increased due to
higher PSC(TM) sales which averaged 6,900 bbl/d at an average price
of approximately $96/bbl, compared to 4,800 bbl/d at an average
price of approximately $79/bbl for the same period in 2010. For the
third quarter of 2011 our share of PSH sales averaged 3,900 bbl/d
at an average price of $71/bbl, compared to 4,800 bbl/d at an
average price of approximately $53/bbl for the same period in 2010.
Our share of bitumen production during the third quarter of 2011
averaged 10,400 bbl/d compared to 9,000 bbl/d for the same period
in 2010. Our total revenue net of royalties, diluent and feedstock
expenses increased to $64 million for the third quarter of 2011
compared with $38 million for the same period in 2010. This
increase in net revenue is due to increased PSC(TM) sales as a
result of higher SAGD production, Upgrader on-stream time, PSC(TM)
yields and WTI prices.
For the nine months ended September 30, 2011, we earned revenue
net of royalties of $245 million compared to $170 million for the
same period in 2010. Our total revenue, net of royalties, diluent
and feedstock was $198 million for the nine months ended September
30, 2011 compared to $110 million for the same period in 2010. This
is primarily due to increased bitumen production and higher PSC(TM)
sales as a result of higher Upgrader on-stream time and PSC(TM)
yields.
During the third quarter of 2011 we had power sales of $1
million representing approximately 14,400 MWh of electricity sold
at an average price of approximately $63/MWh, consistent with power
sales of $1 million for the same period in 2010 representing
approximately 34,400 MWh at an average price of approximately
$37/MWh. For the nine months ended September 30, 2011 we had power
sales of $5 million compared to $6 million for the same period in
2010.
Expenses
(i) Operating expenses
Our operating expenses are primarily comprised of maintenance,
labour, operating materials and services, chemicals and natural
gas.
For the three months ended September 30, 2011 operating expenses
were $59 million compared to $54 million for the same period in
2010. Operating expenses in the third quarter of 2011 increased due
to planned and unplanned maintenance, and initiatives to increase
plant reliability and improve well performance. The third quarter
included planned maintenance on the second hot lime softener and a
Cogeneration unit, as well as unplanned maintenance on gasifiers.
During the third quarter of 2011 we purchased an average of 21,200
gigajoules per day (GJ/d) of natural gas at an average price of
$3.58/GJ compared to 23,400 GJ/d at an average price of $3.39/GJ
for the same period in 2010.
For the nine months ended September 30, 2011 operating expenses
were $191 million compared to $159 million for the same period in
2010. Operating costs for the first three quarters of 2011
increased due to planned and unplanned maintenance, and initiatives
to increase plant reliability and improve well performance. During
the nine months ended September 30, 2011 we purchased an average of
24,700 GJ/d of natural gas at an average price of $3.66/GJ compared
to 24,000 GJ/d at an average price of $3.96/GJ in the same period
in 2010.
(i) Diluent and feedstock purchases
For the three months ended September 30, 2011 diluent and
feedstock purchases were $23 million compared to $21 million for
the same period in 2010. Diluent purchases are used for blending
with bitumen to produce PSH.
Diluent purchases increased to 340 bbl/d at an average price of
$109/bbl in the third quarter of 2011 from nil in the third quarter
of 2010 due to blending requirements for PSH production. For the
nine months ended September 30, 2011 diluent purchases were 110
bbl/d at an average price of $109 bbl/d, compared to 300 bbl/d at
an average price of $83/bbl in the same period in 2010. Generally
diluent is not purchased during periods when the Upgrader is
operating at high capacity as the production of PSC(TM) does not
require diluent. Gasifier reliability issues limited Upgrader
throughput during portions of the third quarter of 2011.
In 2010, we purchased third-party bitumen feedstock to achieve
certain minimum operating thresholds for efficiencies in the
Upgrader which helped to improve PSC(TM) yields at lower production
levels. In 2011 third-party bitumen purchases have occurred when
economically beneficial. Purchasing third-party feedstock to
upgrade into PSC(TM) is expected to be economically beneficial only
during periods when we have stable Upgrader operations (and thus
high PSC(TM) yields) and when pricing conditions support the
difference between the cost of such feedstock and expected PSC(TM)
sales pricing.
For the three months ended September 30, 2011 we purchased $19
million of third-party bitumen representing approximately 3,500
bbl/d at an average price of $61/bbl, compared to $16 million
representing approximately 3,300 bbl/d at an average price of
$54/bbl for the same period in 2010. For the nine months ended
September 30, 2011 we purchased $43 million of third-party bitumen
representing approximately 2,400 bbl/d at an average price of
$66/bbl, compared to $54 million representing 3,300 bbl/d at an
average price of $60/bbl for the same period in 2010. The decrease
in third-party bitumen purchases in the nine months ended September
30, 2011 is due to higher SAGD production reducing the requirement
to purchase bitumen to maintain Upgrader feed rate and yield. In
2011 third party bitumen has been purchased when economically
attractive.
(i) Transportation
For the three months ended September 30, 2011 transportation
expenses were $5 million, a slight increase from $4 million for the
same period in 2010. For the nine months ended September 30, 2011
transportation expenses were $13 million, as compared to $12
million for the nine months ended September 30, 2010.
Transportation expenses primarily related to pipeline costs
associated with PSC(TM) and PSH sales and were similar due to the
largely fixed nature of the pipeline transportation contracts.
Corporate expenses
(i) Net borrowing costs
For the three months ended September 30, 2011 net borrowing
costs were $51 million compared to $48 million for the same period
in 2010. For the nine months ended September 30, 2011 net borrowing
costs were $149 million compared to $130 million in the prior
comparative period. The increase in 2011 was due to the interest
expense on the increased borrowings on our revolving credit
facility and the interest expense for the US$100 million First Lien
Notes and the US$300 million First Lien Notes both issued in August
2010. Borrowing costs also include the amortization of the discount
related to the issuance of the First Lien Notes in 2009 and 2010
and the amortization of the transaction costs associated with the
issuance of our Second Lien Notes (as defined herein). The
remaining discount of $13 million and transaction costs of $31
million will be amortized over the terms of the facilities.
(i) General and administrative (G&A)
For three months ended September 30, 2011 G&A expense was $3
million compared to $4 million for the same period in 2010. For the
nine months ended September 30, 2011 G&A expense was $9 million
compared to $11 million in 2010. G&A expense decreased from
2010 due to higher expenses relating to the strategic alternatives
review process in 2010. Included in G&A expense is non-cash
stock-based compensation expense for the three and nine months
ended September 30, 2011 of $0.2 million and $0.9 million
respectively compared to $0.4 million and $1.6 million in 2010.
(i) Net realized loss on derivative instruments
For both the three and nine months ended September 30, 2011 net
realized loss on derivative instruments was $110 million compared
to losses of $3 million and $55 million respectively for the same
periods in 2010. The realized loss in 2011 was due to the
crystallization of our foreign exchange derivative instrument. The
losses in 2010 relate to the settlement of foreign exchange
derivative instruments and our realized commodity hedging losses.
The foreign exchange loss was a result of the final mark-to-market
of our US$420 million foreign exchange derivative instruments with
rates of CDN$1.22:US$1.00 which were terminated under an event of
default due to the CCAA Proceeding. The commodity losses were a
result of our 2010 hedging instruments of 3,000 bbl/d at strike
prices between US$64/bbl and US$67/bbl when the average WTI price
for three months ended September 30, 2010 was $75/bbl and for the
nine months ended September 30, 2010 was US$78/bbl. We currently
hold no foreign exchange or commodity derivative instruments.
Non-cash items
(i) Foreign exchange loss (gain)
For the three months ended September 30, 2011 the foreign
exchange translation loss was $215 million compared to a $77
million gain for the same period in 2010. For the nine months ended
September 30, 2011 the foreign exchange translation loss was $141
million compared to a gain of $46 million in the prior comparative
period. The losses are primarily comprised of the re-measurement of
our U.S. dollar-denominated long-term debt net of gains on cash and
cash equivalents and interest escrow. During the three and nine
month periods ended September 30, 2011 the Canadian dollar weakened
to CDN$1.05:US$1.00 from CDN$0.99:US$1.00 at January 1, 2011 and
CDN$0.96:US$1.00 at June 30, 2011. This compares to the
corresponding periods in 2010, when the Canadian dollar
strengthened to CDN$1.03:US$1.00 at September 30, 2010 from
CDN$1.05:US$1.00 at January 1, 2010 and CDN $1.06:USD$1.00 at June
30, 2010. The gains on the re-measurement of debt, cash and cash
equivalents and interest escrow are unrealized.
(i) Net unrealized loss on derivative instruments
For the three months ended September 30, 2011 net unrealized
gain on derivative instruments was $105 million compared to a $14
million loss for the three month period ended September 30, 2010.
The realized gain in 2011 is due to the crystallization of our
foreign exchange derivative instruments which resulted in the
reversal of the previously recognized unrealized loss. The loss in
2010 was comprised of a $16 million unrealized loss on our foreign
exchange derivative instruments and a $2 million unrealized gain on
our commodity derivative instruments.
For the nine months ended September 30, 2011 net unrealized gain
on derivative instruments was $105 million compared to a $37
million gain for the same period in 2010. The realized gain in 2011
is due to the crystallization of our foreign exchange derivative
instruments. The gain in 2010 is comprised of a $14 million
unrealized gain on our commodity derivative instruments due to the
maturing of the instruments during the period and a $23 million
unrealized gain on our foreign exchange derivative instruments.
(i) Depletion and depreciation
For the three months ended September 30, 2011 depletion and
depreciation expense was $16 million compared to $14 million for
the same period in 2010. For the nine months ended September 30,
2011 depletion and depreciation expense was $45 million compared to
$37 million in the prior comparative period. Production volumes
have been higher in 2011 resulting in higher depletion and
depreciation costs.
CAPITAL EXPENDITURES
Property, plant and equipment
The table below identifies expenditures incurred in relation to
the Long Lake Project (the Project), other oil sands activities and
other capital expenditures.
----------------------------------------------------------------------------
Three months Nine months
ended ended Year ended
September 30, September 30, December 31,
$ millions 2011(1) 2011(1) 2010(1)
----------------------------------------------------------------------------
Long Lake
Sustaining capital $ 30 $ 88 $ 80
Kinosis
Engineering and equipment - 7 12
----------------------------------------------------------------------------
Oil sands expenditures 30 95 92
----------------------------------------------------------------------------
Other capital expenditures 7 12 -
Capitalized interest 5 14 16
----------------------------------------------------------------------------
Total cash expenditures 42 121 108
----------------------------------------------------------------------------
Non-cash capital charges 16 26 8
----------------------------------------------------------------------------
Total property, plant and
equipment expenditures $ 58 $ 147 $ 116
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Notes: (1) As prepared under IFRS.
For the three months ended September 30, 2011 we had sustaining
capital expenditures of $30 million for the Project. As with all
SAGD projects, new well pads must be drilled and tied-in to the
SAGD central facility to maintain production at design rates over
the life of the Project. The majority of the expenditures related
to ongoing progress on engineering and construction of well pads 12
and 13 and the associated connecting lines to the central plant
facility, and various optimization projects to enhance plant
reliability and improve well performance.
Exploration and evaluation assets
The table below identifies expenditures incurred in relation to
future expansions.
----------------------------------------------------------------------------
Three months Nine months
ended ended Year ended
September 30, September 30, December 31,
$ millions 2011(1) 2011(1) 2010(1)
----------------------------------------------------------------------------
Resource acquisition and
delineation
Kinosis $ - $ 25 $ 2
Cottonwood - - 1
Leismer - - 1
----------------------------------------------------------------------------
Total resource expenditures - 25 4
----------------------------------------------------------------------------
Capitalized interest 10 27 31
----------------------------------------------------------------------------
Total expenditures on
exploration and evaluation $ 10 $ 52 $ 35
assets
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Notes: (1) As prepared under IFRS.
In the three months ended September 30, 2011 we incurred
insignificant exploration and evaluation expenditures for resource
delineation. Resource delineation includes drilling of coreholes,
seismic and related reservoir engineering and analysis.
OPTI and Nexen continue to evaluate developing SAGD projects in
10,000 to 40,000 bbl/d bitumen stages at Kinosis. Should a new
development plan be approved without an upgrader, OPTI will assess
the book value of the Kinosis assets for impairment. If the
engineering completed to date cannot be utilized, this may result
in an impairment of $75 million to $150 million.
SUMMARY FINANCIAL INFORMATION (unaudited)
----------------------------------------------------------------------------
In millions
(except per
share
amounts) 2011(1) 2010(1) 2009(2)
----------------------------------------------------------------
Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4
----------------------------------------------------------------------------
Revenue $ 87 $ 94 $ 63 $ 81 $ 59 $ 61 $ 50 $ 43
----------------------------------------------------------------------------
Net loss (290) (55) (27) (16) (26) (144) (41) (212)
----------------------------------------------------------------------------
Loss per
share,
basic and $ (1.03)$ (0.19)$ (0.09)$ (0.06)$ (0.09)$ (0.51)$ (0.15)$ (0.75)
diluted
----------------------------------------------------------------------------
Notes:
(1) As prepared under IFRS.
(2) As prepared under Canadian GAAP.
Operations-to-date represent initial stages of our operations at
relatively low operating volumes.
The net loss of $212 million in the fourth quarter of 2009
includes a net field operating loss of $21 million, interest
expense of $43 million, an unrealized loss on our derivatives of
$36 million offset by a foreign exchange gain of $36 million, and
future tax expense of $119 million that resulted from the
de-recognition of a future tax asset.
During the first quarter of 2010 we had a net field operating
loss of $29 million, $40 million in borrowing costs and a $26
million unrealized loss on derivative instruments offset by a
foreign exchange gain of $72 million. During the second quarter of
2010 we had a net field operating loss of $11 million, $41 million
in borrowing costs, a $48 million realized loss on derivative
instruments and a $104 million foreign exchange loss offset by a
$77 million unrealized gain in derivative instruments. During the
third quarter of 2010 we had a net field operating loss of $20
million, $48 million in borrowing costs, offset by a $77 million
unrealized foreign exchange gain. During the fourth quarter of 2010
we had a net field operating loss of $4 million, $51 million in
borrowing costs, and $30 million in realized derivative losses
offset by an $81 million unrealized foreign exchange gain.
During the first quarter of 2011 we had a net field operating
loss of $8 million, $50 million in borrowing costs and a $13
million unrealized loss on derivative instruments offset by a
foreign exchange gain of $61 million. The second quarter of 2011
OPTI generated a positive net field operating margin of $2 million
and a $12 million foreign exchange translation gain offset by
borrowing costs of $47 million. A nil net field operating margin
was achieved in the third quarter, offset by a $215 million loss on
foreign exchange translation of our net US$ denominated debt and
borrowing costs of $51 million.
SHARE CAPITAL
At October 26, 2011 OPTI had 281,749,526 common shares and
3,471,500 common share options outstanding. The common share
options have a weighted average exercise price of $3.63 per
share.
CASH FLOW UNDER THE PROCEEDINGS
As part of the Proceedings, OPTI filed with the Court a cash
flow forecast to December 31, 2011. Sources of cash include
unrestricted cash on hand at August 27, 2011 of $162 million,
restricted cash of US$59 million (interest reserve account
associated with our US$300 million First Lien Notes) and the
estimated positive net field operating margin of $14 million. Uses
of cash include estimated capital expenditures of $56 million
(excluding Kinosis), general corporate, payroll and employee
benefits of $5 million, costs associated with the strategic
alternatives review (including the Proceedings) of $4 million, and
interest costs associated with the US$525 million First Lien Notes
of US$24 million and our revolving credit facility of $5 million.
Interest payments for the US$300 million First Lien Notes are due
in February and August of each year and are funded from our
restricted cash balance (interest reserve account). In accordance
with the Initial Order, interest on the Second Lien Notes is not
presently payable and not included in this forecast. OPTI expects
to have sufficient financial resources to meet its financial
obligations to implementation of the Master Plan or to December 31,
2011, primarily subject to continuation of: the stay period with
respect to interest obligations on OPTI's Second Lien Notes; and
the forbearance agreements with respect to obligations on the
Company's existing revolving credit facility and foreign exchange
derivative instruments.
Forbearance
The CCAA Proceeding is an event of default under our revolving
credit facility and foreign exchange derivative instruments. The
Company negotiated forbearance agreements with its existing
revolving credit facility lenders and counterparties to its foreign
exchange derivative instruments. These forbearance agreements
preclude these lenders or counterparties from exercising any
set-off rights under such facility and instruments unless an
additional event of default condition occurs, including, but not
limited to, non-payment of termination amounts with respect to the
foreign exchange derivative instruments by a specified date and
noncompliance to the debt-to-capitalization covenant on OPTI's
revolving credit facility. The original forbearance agreements were
extended and are in place until the earlier of the completion of
the Master Plan or December 1, 2011.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2011 we had approximately $150 million of cash
available. Our cash and cash equivalents are invested exclusively
in money market instruments issued by major Canadian banks. In
addition, at September 30, 2011 we had restricted cash of US$59
million in an interest reserve account associated with our US$300
million First Lien Notes. Our long-term debt consists of US$1,750
million Second Lien Notes, US$825 million First Lien Notes as well
as a $190 million revolving credit facility. We made no additional
borrowings under our revolving credit facility during the third
quarter of 2011. A total of $165 million is drawn under the
facility that matures in December 2011. OPTI intends to repay
outstanding amounts under this facility on or around successful
completion of the Master Plan.
During the previous quarter, counterparty banks to the Company's
foreign exchange derivative instruments issued early termination
notices which resulted in a fixed amount owing under the
instruments as a result of a default on the instruments caused by
the CCAA Proceeding. This fixed amount is $110 million and is
subject to a default rate of interest of approximately 2.4 percent
per annum from the date of the early termination notice until such
fixed amount is repaid. OPTI intends to settle this fixed amount on
or around successful completion of the Master Plan. Default
interest continues to be paid on a monthly basis.
Expected cash outflows, and our ability to meet these
obligations, for the remainder of 2011 will depend on the outcome
of the Proceedings. If the Recapitalization is completed, it would
reduce our total debt by approximately US$1,475 million and also
reduce our annual interest costs. In addition the $375 million in
new equity would materially improve our liquidity. OPTI intends to
fund its capital budget of $40 million for the remainder of
2011.
Our future financial resources will also be affected by net
field operating margin or loss. In the third quarter we incurred a
negligible net field operating loss, compared with a positive
margin of $2 million in the previous quarter. The loss was
primarily due to lower market commodity prices. Our net field
operating margin or loss is affected by: bitumen volumes; on-stream
factor; commodity prices (in particular, WTI); PSC(TM) yields and
operating costs. On a long-term basis, we estimate our share of
capital expenditures required to sustain production at or near
planned capacity for the Project will be approximately $80 million
per year prior to the effects of inflation.
For the nine months ended Sept 30, 2011 cash used in operating
activities was $22 million, cash provided by financing activities
was $129 million and cash used by investing activities was $132
million. These cash flows, combined with a translation gain on our
U.S. dollar denominated cash of $2 million, resulted in a decrease
in cash and cash equivalents during the period of $23 million.
During the third quarter of 2011 we used our cash on hand to fund
our capital expenditures. For the remainder of 2011 our primary
sources of funding include our existing cash and potential proceeds
resulting from the Master Plan.
We have annual interest payments of US$47 million until maturity
on the US$525 million First Lien Notes due in 2012. In addition, we
have annual interest payments of US$29 million until maturity on
the US$300 million First Lien Notes due in 2013, which will be
funded by our US$59 million interest reserve account, and annual
interest payments of US$142 million until maturity on the US$1,750
million Second Lien Notes due in 2014. In accordance with the
Initial Order of the Court, interest on the Second Lien Notes is
not presently payable. Upon completion of the Master Plan, the
Second Lien Notes will no longer be outstanding.
If the Master Plan is unsuccessful, there are covenants in place
on our US$1,750 million Second Lien Notes primarily to limit the
total amount of debt that OPTI may incur at any time. This limit is
most affected by the present value of our total proven reserves
using forecast prices and costs discounted at 10 percent. Based on
our 2010 reserve report, we have sufficient capacity under this
test to incur additional debt beyond our existing $190 million
revolving credit facility and existing Senior Notes. Other
considerations, such as restrictions under the First Lien Notes and
$190 million revolving credit facility, are expected to be more
constraining than this limitation.
Our revolving credit facility matures in December 2011. OPTI is
currently in default under this agreement although certain rights
of the lenders to the facility have been stayed under the
Proceedings. We do not expect to be able to make further borrowings
until the Proceedings are complete. The facility requires adherence
to a covenant that does not allow our debt-to-capitalization ratio
to exceed 75 percent, as calculated on a quarterly basis. The ratio
is calculated based on the book value of debt and equity. The book
value of debt is adjusted to reflect the effect of any foreign
exchange derivative instruments issued in connection with the debt
that may be outstanding. Our book value of equity is adjusted to
exclude the $369 million increase to deficit as a result of the
asset impairment associated with the working interest sale to Nexen
and to exclude the $85 million increase to the January 1, 2009
opening deficit as a result of new accounting pronouncements
effective on that date. Accordingly, at September 30, 2011, for the
purposes of this ratio calculation, our debt would be increased by
the termination liability of our foreign exchange derivative
instruments in the amount of $110 million and our deficit would be
reduced by $455 million. With respect to U.S. dollar denominated
debt and foreign exchange derivative instruments, for purposes of
the total debt-to-capitalization ratio, the debt and foreign
exchange derivative instruments are translated to Canadian dollars
based on the average exchange rate for the quarter. The total
debt-to-capitalization is therefore influenced by the variability
in the measurement of the foreign exchange derivative instruments,
which is subject to mark-to-market variability and average foreign
exchange rate changes during the quarter. The total
debt-to-capitalization calculation at September 30, 2011 is 70
percent.
The development of future expansions, such as Kinosis, will
require significant financial resources. Effective April 1, 2011
OPTI exercised a deferred payment funding option for all capital
expenditures relating to Kinosis. We retain all of our other rights
under the joint venture agreement and we have the discretion to
resume funding of our proportionate share of Kinosis costs. OPTI's
proportionate share of incurred costs to September 30, 2011 is
approximately $10 million (plus applicable interest). This amount
has been accrued and is included in trade payable and accrued
liabilities in the financial statements for the period ended
September 30, 2011.
Our rate of production increase will have a significant impact
on our net field operating margin and thus on our financial
position in the next 12 months and beyond. Delays in ramp up of
SAGD production, operating issues with SAGD or Upgrader operations
and/or deterioration of commodity prices could result in additional
funding requirements. Should the Master Plan not be completed, the
Company would require additional funding, which would likely be
difficult and expensive to obtain. In addition, certain covenants
in our Senior Note indentures and revolving credit facility limit
the amount of additional debt we can incur.
For 2011 and beyond we have exposure to commodity pricing as we
have not entered into any commodity derivative instruments (risks
associated with our derivative instruments are discussed in more
detail under "Financial Instruments"). The majority of our
operating and interest costs are fixed. Aside from changes in the
price of natural gas, our operating costs will neither decrease nor
increase significantly as a result of fluctuations in WTI prices
other than with respect to royalties to the Government of Alberta,
which increase on a sliding scale at WTI prices higher than
CDN$55/bbl. Collectively, this means that the variability of our
financial resources will primarily be influenced by production
rates and resulting PSC(TM) sales, operating expenses and by
foreign exchange rates.
The Proceedings constitute an event of default under our credit
agreement and note indentures. An event of default may result in
acceleration of principal amounts owed, exercise of set-off rights
against our cash deposits and investments and other material
adverse consequences to OPTI. Presently, these rights have either
been stayed by the Court in connection with the Proceedings or are
subject to forbearance agreements. As such, all obligations of OPTI
outside of those stayed by the Court or subject to forbearance
agreements are expected to be paid in the ordinary course.
Should the Acquisition be terminated, OPTI would maintain its
protection under the Proceedings to implement the Recapitalization
which would materially enhance the Company's liquidity and leave
the Company with a more appropriately leveraged capital structure
and reduced interest burden.
There can be no assurance that the current stay period granted
by the Court, and any subsequent extensions thereof, will be
sufficient to complete the Master Plan under the Proceedings. In
any case, should OPTI lose the protection of the stay under the
Proceedings, creditors might immediately enforce rights and
remedies against OPTI and its properties, which may lead to the
liquidation of OPTI's assets. Failure to implement the Acquisition,
or in the alternative obtain sufficient exit financing subsequent
to the Recapitalization, within the time granted by the Court, may
lead to the liquidation of OPTI's assets.
CREDIT RATINGS
In previous quarters OPTI has maintained a corporate rating as
well as ratings for its revolving credit facility and Senior Notes
with Standard and Poor's (S&P) and Moody's Investor Service
(Moody's). Subsequent to OPTI's filing under the CCAA on July 13,
2011, S&P and Moody's adjusted all ratings for the Company.
S&P lowered all of OPTI's ratings to D. It is expected that
these ratings will remain at this level until the Company emerges
from the CCAA Proceeding. Moody's withdrew all of OPTI's ratings.
These ratings could be reissued when the Company emerges from the
CCAA Proceeding. A credit rating is not a recommendation to buy,
sell or hold securities and may be subject to revision and
withdrawal at any time by the rating organization.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The following table shows our contractual obligations and
commitments related to our financial liabilities at September 30,
2011. These amounts do not include adjustments from or anticipated
results of the Proceedings.
----------------------------------------------------------------------------
In $ millions Total 2011 2012-2013 2014-2015 Thereafter
----------------------------------------------------------------------------
Accounts payable
and accrued
liabilities(1) $ 196 $ 196 $ - $ - $ -
Long-term debt
(Senior Notes - 2,699 - 865 1,834 -
principal)(2)
Long-term debt
(Senior Notes - 729 173 408 148 -
interest)(3)
Long-term debt
(revolving
facility 165 165 - - -
principal)(4)
Finance
leases(5) 75 1 9 9 56
Operating leases
and other
commitments(5) 57 3 21 7 26
Contracts and
purchase 25 7 3 4 11
orders(6)
----------------------------------------------------------------------------
Total
commitments $ 3,946 $ 545 $ 1,306 $ 2,002 $ 93
----------------------------------------------------------------------------
Notes:
(1) Excludes accrued interest expense related to the Senior
Notes. These costs are included in (3).
(2) Consists of principal repayments on the Senior Notes,
translated into Canadian dollars using an exchange rate of CDN$1.05
to US$1.00 as at September 30, 2011.
(3) Consists of scheduled interest payments on the Senior Notes,
translated into Canadian dollars using an exchange rate of CDN$1.05
to US$1.00 as at September 30, 2011.
(4) As at September 30, 2011 we have borrowed $165 million on
our $190 million revolving credit facility. We are contractually
obligated for interest payments on borrowings and standby charges
in respect to undrawn amounts under the revolving credit facility,
which are not reflected in the above table as amounts cannot
reasonably be estimated due to the revolving nature of the facility
and variable interest rates. Relative to our total commitments, we
do not consider such amounts material.
(5) Consists of our share of future payments under our product
transportation agreements with respect to future tolls during the
initial contract term.
(6) Consists of our share of commitments associated with
contracts and purchase orders in connection with the Project and
our other oil sands activities associated with future
expansions.
About OPTI
OPTI Canada Inc. is a Calgary, Alberta-based company focused on
developing major oil sands projects in Canada. OPTI's first
project, the Long Lake Project, is a joint venture between OPTI and
Nexen Inc. (Nexen). OPTI holds a 35 percent working interest in the
joint venture. Nexen is the sole operator of the Project.
Additional information relating to OPTI can be found at
www.sedar.com.
FORWARD-LOOKING INFORMATION
Certain statements contained herein are forward-looking
statements, including, but not limited to, statements relating to:
the expected increase in production and improved operational
performance of the Project; OPTI's other business prospects,
expansion plans and strategies; the cost, development, operation
and maintenance of the Project as well as future expansions
thereof, and OPTI's relationship with Nexen; the expected
development, timing and production of well pads coming on
production; the expected SOR range for the Project and time
expected to reach this range; the expected SOR for our original
well pairs; the potential cost and anticipated impact of additional
steam capacity; the anticipated potential to tie-in bitumen
production from Kinosis to the Long Lake Upgrader; the expected
feedstock purchases for the Project; the expected PSC(TM) yields,
volumes and sales; the expected improvement to net field operating
margin; the sales price of PSC(TM); the anticipated timing and
expected start-up of the Upgrader following repairs to the air
separation unit and OPTI's ability to produce and sell bitumen
during the downtime; the expected requirement of additional
financial resources to develop future expansions at Kinosis and
beyond; OPTI's anticipated financial condition, material
obligations and liquidity in 2011 and in the long-term; the final
outcome of OPTI's strategic alternatives review; the expected
likelihood that we will be unable to fund our financial commitments
without a conclusion to OPTI's Proceedings; the expected difficulty
and expense of additional funding; OPTI's expected ability to
continue as a going concern and the related factors which create
significant doubt about this ability; the anticipated outcome of
OPTI's Proceedings; OPTI's ability to maintain its protection under
the CCAA; the ability to implement the Acquisition or the
Recapitalization; the expectation for OPTI to pay certain
obligations in the ordinary course; the ability of the Company to
enforce provisions, and if need be extend provisions, under
forbearance agreements with its lenders and counterparties; the
expected conversion of Second Lien Notes and the issuance of a new
equity investment through a rights offering under the
Recapitalization; the expectation to repay/refinance OPTI's
existing Revolving Credit Facility; and the expected implementation
date for the Acquisition or Recapitalization.
Forward-looking information typically contains statements with
words such as "intend," "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 that may prove to be incorrect. In
addition to other assumptions identified herein, OPTI has made
assumptions regarding, among other things: market costs and other
variables affecting operating costs of the Project; the ability of
the Project 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 PSC(TM) and PSH; and foreign currency exchange
rates and derivative instruments risks. Other specific assumptions
and key risks and uncertainties are described elsewhere in this
document and in OPTI's other filings with Canadian securities
authorities.
Readers should be aware that the list of assumptions, risks and
uncertainties set forth herein are not exhaustive. Readers should
refer to OPTI's current Annual Information Form, filed on SEDAR and
EDGAR and available at www.sedar.com and http://edgar.sec.gov, for
a detailed discussion of these assumptions, 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.
Although we believe that we have identified the material risks
and assumptions to, among other things, the operating and liquidity
risks and risks related to the concurrent proceedings under the
CCAA and the CBCA outlined herein as well as in OPTI's other
filings with Canadian securities authorities, there is no assurance
that actual results will be the same or similar to those
anticipated by OPTI. Furthermore, there may be other material risks
and uncertainties that may impact our liquidity position and the
outcome of the Company's potential Acquisition or Recapitalization
that have not yet been identified. This uncertainty applies to
disclosures regarding commitments, and the carrying value of
assets.
Additional information relating to our Company is filed on SEDAR
at www.sedar.com.
Neither TSX Venture Exchange nor its Regulation Services
Provider (as that term is defined in the policies of the TSX
Venture Exchange) accepts responsibility for the adequacy or
accuracy of this release.
Contacts: OPTI Canada Inc. Krista Ostapovich Investor Relations
(403) 218-4705ir@opticanada.com OPTI Canada Inc. Suite 1600, 555 -
4th Avenue SW Calgary, Alberta, Canada T2P 3E7 (403) 249-9425
Opti Canada Com (TSXV:OPC)
Historical Stock Chart
From Oct 2024 to Nov 2024
Opti Canada Com (TSXV:OPC)
Historical Stock Chart
From Nov 2023 to Nov 2024
