OPTI sale separates pretenders from contenders

Andrew Willis, today at 2:54 PM EST

Not too long ago, many investors played the oil sands with an eye towards picking takeover targets.

Well, the takeovers have begun to play out. But the market meltdown means the premiums anticipated by owners of junior energy plays are nowhere to be seen.

Pretenders are now being bought out by contenders in northern Alberta, with OPTI Canada staging what amounts to a desperation sale by moving 15 per cent of its stake in its Long Lake project to partner Nexen for $735-million.

OPTI's single major asset is this project, and the company was up against its debt limits when it announced the sale, which still requires the approval of lenders. Funding the enormous capital costs at Long Lake as an equal partner to Nexen was simply no longer feasible.

Even as a 35 per cent partner, OPTI will face financing challenges at Long Lake if current credit conditions persist.

Nexen, on the other hand, is signalling the oil sands will be a priority. The company will stretch financially to make this acquisition - Moody's put Nexen's credit ratings on review. However, Nexen's deeper balance sheet and diverse collection of properties give it far more flexibility.

It's quite likely that incoming Nexen CEO Marvin Romanow will sell assets to keep his own balance sheet in decent shape - there has long been talk that properties in Yemen could be sold for more than $1-billion.

It doesn't take a Hogwarts sorting hat to figure out who belongs in each camp. The dynamic of cash-rich and cash poor exists at many oil sands properties. There is a short list of potential buyers - all cash-rich global energy players. There is a much longer list of about two dozen companies with various stakes in the Alberta countryside, but little chance of raising the capital needed to bring these projects on stream.

RBC Capital Markets worked with Nexen on this transaction.

TD Securities was lead financial adviser to OPTI, with Credit Suisse also helping out as a financial adviser and Peters & Co. stepping up with an independent report to OPTI board.

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