The operator of one of the oil sands' most troubled projects has put itself up for sale, underscoring the pressure smaller industry players face in the capital-intensive industry.
OPTI Canada Inc., which owns a 35-per-cent share of the struggling Long Lake project, said Tuesday it has hired financial advisers to find a buyer for the company, sell some of its assets or restructure its debt.
While oil sands assets are dominated by energy giants, a group of small and medium-sized companies were early to identify the sector's potential and tapped free-flowing capital markets years ago to secure attractive property holdings.
But in the wake of oil's price slide earlier this year and the global financial crisis, not all oil sands players have found financing the costly, long-term projects as easy as it once was. As a result, some are lured to join forces with larger firms.
In recent months, a resurgent interest in the oil sands has brought multibillion-dollar investments from Chinese and South Korean interests. In August, PetroChina Co. Ltd. bought a 60-per-cent stake in two oil sands projects from Athabasca Oil Sands Corp. Last month, the Korea National Oil Corp. bought out Harvest Energy Trust for $1.8-billion in cash, plus $2.3-billion in assumed debt.
OPTI shares have surged since September on hopes it would be the next target of firms looking to take a chance on an outfit with much promise, but shaky execution.
Long Lake, its primary asset, has failed to attain even half its 72,000 barrel-per-day design production in the more than two years it has operated. Though the company said last week it believes it has now solved the majority of its startup problems, it also backed away from a promised late-2010 full-production date - and declined to give another.
OPTI sold a 15-per-cent interest in Long Lake to partner Nexen Inc. for $735-million this January, but some analysts believe that at current burn rates, the company will run out of money within the next six months.
It has accumulated debt of $1.75-billion (U.S.) and another $150-million (Canadian).
OPTI's problems, however, stand in stark contrast to the new confidence that has flowed into major oil sands players in recent months, in part thanks to what a new research report calls the "golden opportunity" that now stands before companies bold enough to bet on new investments.
In the past year, the cost of building new oil sands projects has fallen by 15 per cent, while operating costs have declined by 13 per cent.
At the same time, the long-term outlook for oil prices continues to show steady increases.
Combined, those factors have placed the industry at a moment where building now may secure future returns as high as 23 per cent, the Canadian Energy Research Institute found.
"Those that move fast will reap the rewards, along with the Government of Alberta which will collect substantial royalty revenues," the institute says in a new report. It forecasts that over the next 35 years, companies will spend a staggering $309-billion to bring oil sands production to 5.3 million barrels a day, more than four times current output.
And, it found, a rise in oil prices to nearly $200 a barrel will more than compensate for the cost of meeting carbon legislation over that time period.
"Everyone wins in this scenario of oil sands development," said Dave McColl, CERI's research director.
Others, however, questioned whether the industry will be able to sustain such an extraordinary growth.
Environmental issues, and changing attitudes toward energy, may limit both global oil demand and the oil sands' ability to grow, said Peter Tertzakian, the chief energy economist at ARC Financial Corp. in Calgary.
"The oil sands is still the marginal producer in the world," he said.
"In other words, it still represents the highest-cost barrels in the world," he added. "So it's vulnerable."