OPTI Canada Inc.'s stock has surged almost 4 per cent Friday, as investors let out a big sigh of relief over the Alberta royalty decision that, for OPTI, could have been much worse.
The Calgary-based company, which boasts proprietary bitumen upgrading technology and is a 50-50 partner with Nexen Inc. in the Long Lake oil sands project in northern Alberta, saw its stock rise 66 cents to $19.21 on the Toronto Stock Exchange after Alberta's planned increases to oil sands royalties, announced Thursday, proved less onerous than many industry experts had feared.
Adam Zive, energy analyst at Desjardins Securities in Toronto, said OPTI stood to suffer a 30-per-cent hit to its net asset value had the original royalty recommendations, issued by a government-appointed review panel last month been adopted. But under the plan presented by Alberta Premier Ed Stalmach Thursday the company's net asset value stands to drop only 6 per cent.
He said the key differences that worked to OPTI's benefit were the goverment's decision not to adopt severance tax provisions for oil sands developers, and its decision to set the floor at which higher royalty rates would kick in at $55 (U.S.) a barrel, rather than the recommended $45. The $55 level is very close to the $60 long-term price assumption that most experts are currently using for planning and valuation purposes.
Due to its heavy exposure to the oil sands, OPTI has among the highest sensitivities in the industry to royalty changes, Mr. Zive said.
Mr. Zive was bullish on OPTI's stock anyway, initiating coverage earlier this week with a "buy" recommendation. He said the company's net asset value "looked compelling" relative to its stock prices. He added that after an August announcement of cost increases at Long Lake that hurt the stock, "We felt the downside was mostly reflected already in the stock."
