A month ago, Opti Canada Inc.'s outlook was looking worse. Struggling to make ends meet, the company was burning more cash than it was bringing in, forcing it to announce that a $71-million interest payment would not be made. That prompted Standard & Poor's to slap a default rating on its debt.
Then the company filed for creditor protection.
But on Wednesday bondholders finally got some room to breathe. China National Offshore Oil Corp. wants to buy the entire company for $2.1-billion (U.S.), a value that includes assuming $825-million of Opti's current debt. It's a great outcome a company whose image was severely tarnished. Whether or not its a good investment for CNOOC is still to be determined.
However, the fact that CNOOC is there highlights once again that China's resource giants are willing to get their hands dirty in Canada's troubled firms. In 2009 China Investment Corp. invested $1.5-billion (U.S.) in Teck Resources Ltd., which was struggling for survival during the recession. That investment is now worth about five times the initial outlay.
Much like Opti, the investment in Teck was risky at the time, and it's been reported that China was hesitant to put money into the company. Yet the economy quickly turned around and now CIC is laughing.
Opti likely won't turn such a quick profit. The company has been plagued by slow production at its joint-owned Long Lake project, in part because there is much more underground water than expected. When Opti drills in an area with high water saturation, its steam-to-oil ratio jumps sharply and can hit as high as 10 times. Some of the best producers have ratios around two to three times.
The swirling question now is if a Chinese player will come in and buy Shell's Mackenzie Delta assets, as well as its stake in the to-be-built Mackenzie pipeline. On Monday Shell opened an online data room for potential buyers to get a peak at the project's potential.
China's name has been thrown around as a possible buyer because it doesn't make sense to develop the assets right now. Shale gas is abundant in the U.S. and that has sent natural gas prices plummeting. However, a Chinese player has the resources, and time, to scoop the assets up and sit on them for say 20 years until it makes sense to develop them.
Plus, PetroChina did just walk away from a deal with EnCana, so it may be looking to get its hands on some new natural gas properties.
Scotia Waterous and TD Securities advised OPTI on the transaction, and Macleod Dixon LLP advised on legal matters. Canaccord Genuity and Bennett Jones LLP advised noteholders.
BMO Nesbitt Burns and CIBC World Markets advised CNOOC, and Gowling Lafleur Henderson LLP was legal adviser. In other words, there were a lot of names around this deal.