Exhibit 99.1
News release via Canada NewsWire, Calgary 403-269-7605
Attention Business/Financial Editors:
OPTI Canada Announces Year End 2008 Results
TSX: OPC
CALGARY, Feb. 25 /CNW/ - OPTI Canada Inc. (OPTI) announced today the
Company's financial and operating results for the year ended December 31,
2008.
The Long Lake Project (the Project) is the first to use OPTI's integrated
OrCrude(TM) process. Our proprietary process is designed to substantially
reduce operating costs compared to other oil sands projects while producing a
high quality, sweet synthetic crude. We are also advancing future phases of
growth via a multi-stage expansion strategy to reach 126,000 barrels per day
(bbl/d) of Premium Sweet Crude (PSC(TM)) production capacity net to OPTI.
<<
Key recent developments include the:
- Production of first PSC(TM), the highest quality synthetic crude to
come from Canada's oil sands. Syngas is being produced in the
Upgrader and used in the steam assisted gravity drainage (SAGD)
operations to significantly reduce operating costs. The operations
team is actively working to stabilize production, which is expected
to ramp-up to approximately 58,500 bbl/d of PSC(TM) (21,000 bbl/d net
to OPTI) in 2010;
- Maintenance of an outstanding safety record throughout 2008 as
commissioning and start-up activities were completed on the Long Lake
Upgrader; and
- Sale of a 15 percent working interest in our joint venture to our
partner, Nexen Inc. (Nexen), for $735 million. Effective January 1,
2009, OPTI retains a 35 percent working interest in the joint venture
assets, future phase reserves and resources, and future phases of
development.
>>
"While commodity and financial markets continue to be challenging, we are
pleased to have achieved key milestones early in 2009," said Sid Dykstra,
President and Chief Executive Officer. "With first production of on-spec
PSC(TM) a few weeks ago we demonstrated our technology works. In addition,
with the closing of the working interest sale we have significantly enhanced
our liquidity while retaining a substantial stake in a world class asset."
<<
FINANCIAL SUMMARY
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In millions Years ended December 31
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2008 2007 2006
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Earnings (loss) $ (257)(1) $ (9) $ (10)
Total oil sands expenditures(2) 775 961 1,056
Working capital (deficiency)(3) (25) 271 554
Shareholders' equity $ 1,556 $ 1,816 $ 1,444
Common shares outstanding (basic) 195.9(4) 195.4 172.7
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Notes:
(1) Includes $392 million pre-tax asset impairment provision related to
working interest sale to Nexen.
(2) Capital expenditures related to Phase 1 and future phase development.
Capitalized interest, hedging gains/losses and non-cash additions or
charges are excluded.
(3) Includes current portion of interest reserve account where applicable
and amounts due in June 2009 in relation to our $150 million
revolving debt facility. This $150 million facility was repaid and
cancelled in January 2009.
(4) Common shares outstanding at the end of 2008 after giving effect to
the exercise of common share options would be approximately
203 million common shares.
>>
OVERVIEW
OPTI Canada Inc. is a Calgary, Alberta-based company focused on
developing major oil sands projects in Canada using our proprietary
OrCrude(TM) process. Our first project, Phase 1 of the Long Lake Project (the
Project), consists of 72,000 barrels per day of SAGD (steam assisted gravity
drainage) bitumen production integrated with an upgrading facility. The
Upgrader uses the OrCrude(TM) process combined with commercially available
hydrocracking and gasification. Through gasification, this configuration
substantially reduces the exposure to and the need to purchase natural gas. On
a 100 percent basis, the Project is expected to produce 58,500 bbl/d of
products, primarily 39 degree API Premium Sweet Crude (PSC(TM)) with low
sulphur content, making it a highly desirable refinery feedstock. Due to its
premium characteristics, we expect PSC(TM) to sell at a price similar to West
Texas Intermediate (WTI) crude oil. The Project is being operated in a joint
venture with Nexen Inc.
PROJECT STATUS
First production of PSC(TM) from the Long Lake Project was achieved in
January 2009. Preparation is underway to transition gasifier feed from vacuum
residue to ashphaltenes, the final step in Upgrader commissioning. Synthesis
gas from the Upgrader has been used in SAGD operations, decreasing operating
costs by reducing the requirement for purchased third-party natural gas.
During the initial operating period, we expect periods of downtime but
anticipate that the stability of operations will continue to improve. The
Upgrader is currently gasifying but not producing PSC(TM) due to issues with
water supply and treating but is expected to resume production in the near
future. Essentially all of the PSC(TM) produced to date has been used as
diluent.
During the final commissioning phase, prior to the operation of the
solvent deasphalting and thermal cracking units, there is a high percentage of
diluent that feeds the Upgrader and continues to the hydrocracker, forming
part of the PSC(TM) stream. We have produced over 20,000 bbl/d (gross) of
on-spec PSC(TM), with between 10,000 and 12,000 bbl/d (gross) of this
representing upgraded bitumen. The remainder represents diluent processed
through the Upgrader. The percentage of diluent in the Upgrader feed will
decrease as bitumen production increases.
We expect Upgrader capacity during ramp-up will be capable of processing
all of the forecasted SAGD volumes and we expect the Project to reach full
capacity of approximately 58,500 bbl/d of PSC(TM) and other products in 12 to
18 months.
The reservoir continues to perform as expected given the amount of steam
we have injected. However, SAGD ramp-up has been affected by a variety of
surface issues that have limited the amount of steam we have been able to
inject into the reservoir over the past few months due to power disruptions,
extreme cold weather, and water temperature and treating issues. Since steam
injection rates directly impact bitumen production rates, and the ability to
generate steam is currently limited, bitumen production is lower than
previously expected. Solutions are being developed to place more heat into the
front end of the steaming process to supplement the heat returns from the
reservoir. Given steaming constraints, allocation of steam was necessary and
accordingly only 32 of 81 well pairs are presently in production mode. January
bitumen production averaged approximately 13,000 bbl/d (gross). As steam
capacity increases, the remaining wells will be brought on-stream.
ADVANCING FUTURE PHASES
Our capital program for 2009 includes funds allocated to advance detailed
engineering on the SAGD and Upgrader facilities for Phase 2 of the Project and
also includes funds for additional core hole drilling to further delineate our
nearer-term development leases.
Regulatory approval for Phases 2 and 3 of SAGD development at Long Lake
(Long Lake South) was received in February 2009. Phase 2 sanctioning will
depend on multiple factors including initial performance of Phase 1, receiving
regulatory approval for Phase 2 SAGD operations, receiving clarity on proposed
climate change regulations, developing cost estimates and an improved economic
environment. We therefore do not expect to consider sanctioning Phase 2 until
mid-2010 at the earliest.
COMPLETION OF ASSET SALE AND DEBT FACILITY AMENDMENT
On January 27, 2009, OPTI announced that we had completed the sale of a
15 percent working interest in our joint venture assets to our partner Nexen
for $735 million. Effective January 1, 2009 , OPTI has a 35 percent working
interest in all joint venture assets, including Phase 1 of the Project, all
future phase reserves and resources, and future phases of development.
As a result of the asset sale, our revolving debt facilities were amended
on January 27, 2009. Significant changes include:
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- $150 million revolving credit facility was repaid and cancelled;
- $500 million revolving credit facility was reduced to $350 million,
a total of approximately $400 million was repaid through February 17,
2009, and applicable interest rates were increased by approximately
2 to 4 percent depending on our debt ratings;
- First lien to earnings before interest, tax, depreciation and
amortization (EBITDA) covenant commences in the third quarter of 2009
with a maximum ratio 2.5:1 as defined in Note 10 to the audited
financial statements for the year ended December 31, 2008 (previously
the first quarter of 2009 and a ratio of 3.5:1);
- Debt to capitalization ratio was increased to 70 percent from
65 percent, also as defined in Note 10 to the audited financial
statements for the year ended December 31, 2008; and
- The Canadian measurement of our U.S.-dollar-denominated debt was
changed from a period-end exchange rate to an average rate for the
preceding quarter.
>>
CORPORATE UPDATE
OPTI's management team is transitioning as a result of the asset sale to
Nexen. David Halford, Chief Financial Officer, Mary Bulmer, VP Human Resources
and Corporate Services, and Peter Duda, VP Operations will be leaving to
pursue other business opportunities. They will remain with OPTI for various
periods to continue to facilitate the transition.
Travis Beatty has been appointed Vice President, Finance and Chief
Financial Officer of OPTI effective March 1, 2009. Mr. Beatty joined OPTI in
2002 as Controller and since then has also held the roles of Treasurer and
Director, Planning. Mr. Beatty is a Chartered Accountant and a Chartered
Financial Analyst, and holds a B.Comm from the University of Calgary.
Al Smith has been appointed Vice President, Marketing effective March 1,
2009. Mr. Smith joined OPTI in 2006 as Director, Marketing. Mr. Smith is a
professional engineer in Alberta and is a member of both APEGGA and APEGBC. He
holds a B.A.Sc. in Chemical Engineering from the University of Waterloo.
Going forward, OPTI's senior management team will consist of: Sid
Dykstra, President and Chief Executive Officer; Travis Beatty, VP Finance and
CFO; Joe Bradford, VP Legal and Administration and Corporate Secretary; Bill
King, VP Development; and Al Smith, VP Marketing.
RESERVES AND RESOURCES
OPTI has a significant presence in the Athabasca oil sands, with a 35
percent interest in over 385 sections of land on three leases: Long Lake,
Leismer and Cottonwood. We believe our existing lands will support
approximately 360,000 bbl/d of PSC(TM) production (126,000 bbl/d net to OPTI)
from six phases including Long Lake Phase 1. Based on reserve and resource
estimates, we believe there is potential for three phases at Long Lake, two
phases at Leismer and one at Cottonwood. With a limited delineation program in
the 2007/2008 winter drilling season, total reserve and resource volumes did
not change significantly.
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Reserves
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McDaniel & Associates (McDaniel), our reserves and resources evaluator,
has prepared a report evaluating the bitumen reserves and synthetic oil
reserves of the Long Lake leases effective December 31, 2008. Due to the
advanced nature of our Long Lake Phase 2 project, previously recognized
Contingent Resources are now booked as probable and possible reserves.
For 2008, McDaniel has also recognized probable and possible reserves
associated with lands outside the Phase 2 initial development area to include
certain lands pertaining to Phase 3 development. This is due, in part, to the
inclusion of Phase 3 lands in the Long Lake South Environmental Impact
Assessment, requisite levels of delineation being met on the Phase 3 lands, as
well as McDaniels' confidence in the development of these lands now that Phase
1 is commercial.
The McDaniel evaluation of our lands recognizes the impact of upgrading
on the resources. Most of the raw bitumen will be upgraded and sold as PSC(TM)
and butane, and is shown as synthetic crude oil or butane reserves. Bitumen
was sold prior to Upgrader start-up, is planned to be sold during periods of
Upgrader downtime, and is shown as bitumen reserves.
The following table shows OPTI's 50 percent working interest in the raw
bitumen reserves and the corresponding sales volumes at December 31, 2008,
prior to taking account of the sale of the 15 percent working interest.
<<
2008 (prior to the sale of the 15 percent working interest)
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Raw Gross Sales Volumes
Bitumen -------------------
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All volumes are millions of barrels PSC(TM) Bitumen Butane
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Proven(1) 278 210 16 8
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Proven plus probable(2) 1,054 827 22 32
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Proven plus probable plus
possible(3) 1,148 902 22 34
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The following table shows OPTI's 35 percent working interest in the raw
bitumen reserves and the corresponding sales volumes as at December 31, 2008
after taking account of the sale of the 15 percent working interest.
2008 (subsequent to the sale of the 15 percent working interest)
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Raw Gross Sales Volumes
Bitumen -------------------
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All volumes are millions of barrels PSC(TM) Bitumen Butane
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Proven(1) 194 147 11 6
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Proven plus probable(2) 738 579 15 22
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Proven plus probable plus
possible(3) 803 632 15 24
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Notes to both reserve tables:
(1) Proven reserves are those reserves that can be estimated with a high
degree of certainty to be recoverable. It is likely that the actual
remaining quantities recovered will exceed the estimated proven
reserves.
(2) Probable reserves are those additional reserves that are less certain
to be recovered than proven reserves. It is equally likely that the
actual remaining quantities recovered will be greater or less than
the sum of the estimated proven plus probable reserves.
(3) Possible reserves are those additional reserves that are less certain
to be recovered than probable reserves. There is a 10 percent
probability that the remaining quantities actually recovered will be
greater than the sum of proven plus probable plus possible reserves.
Resources
---------
In addition to estimating our reserves, McDaniel has estimated bitumen
resources on all of OPTI's lands including the Long Lake, Leismer and
Cottonwood leases. A summary of the additional resource estimates as at
December 31, 2008, on a 50 percent working interest basis prior to taking into
account the 15 percent working interest sale, is shown below:
2008 (prior to the sale of the 15 percent working interest)
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All volumes are millions of barrels Raw Bitumen(1)
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Remainder of Long Lake leases(2) 363
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Leismer(2) 954
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Cottonwood(3) 717
---
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Total 2,033
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The following table shows OPTI's 35 percent working interest in the
additional resource estimates after taking account of the sale of the 15
percent working interest.
2008 (subsequent to the sale of the 15 percent working interest)
-------------------------------------------------------------------------
All volumes are millions of barrels Raw Bitumen(1)
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Remainder of Long Lake leases(2) 254
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Leismer(2) 668
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Cottonwood(3) 502
---
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Total 1,424
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Notes to both resource tables:
(1) These estimates represent the "best estimate" of our resources, are
not classified or recognized as reserves, and are in addition to our
disclosed reserve volumes. These resource estimates are categorized
primarily as Contingent Resources, with some categorized as
Prospective Resources. See Notes 2 and 3 below.
Contingent Resources are those quantities of petroleum estimated, as
of a given date, to be potentially recoverable from known
accumulations using established technology or technology under
development, but which are not currently considered to be
commercially recoverable due to one or more contingencies.
Contingencies may include factors such as economic, legal,
environmental, political, and regulatory matters, or a lack of
markets. It is also appropriate to classify as Contingent Resources
the estimated discovered recoverable quantities associated with a
project in the early evaluation stage. There is no certainty that it
will be commercially viable to produce any portion of the Contingent
Resources.
Prospective Resources are those quantities of petroleum estimated, as
of a given date, to be potentially recoverable from undiscovered
accumulations by application of future development projects.
Prospective Resources have both an associated chance of discovery and
a chance of development. There is no certainty that any portion of
the Prospective Resources will be discovered. If discovered, there is
no certainty that it will be commercially viable to produce any
portion of the resources.
(2) The resource estimates for Leismer and Long Lake are categorized as
Contingent Resources. These volumes are classified as resources
rather than reserves primarily due to less delineation and the
absence of regulatory approvals, detailed design estimates and
near-term development plans.
(3) The resource estimate for Cottonwood is categorized as both
Contingent and Prospective Resources. The estimate of 717 million
barrels prior to the sale of the 15 percent working interest would be
comprised of 274 MMbbl of Contingent Resources and 443 MMbbl of
Prospective Resources. After taking account for the sale of the
15 percent working interest, the estimate of 502 million barrels is
comprised of 192 MMbbl of Contingent Resources and 310 MMbbl of
Prospective Resources. These Contingent Resource volumes are
classified as resources rather than reserves primarily due to less
delineation; the absence of regulatory approvals, detailed design
estimates and near-term development plans; and less certainty of the
economic viability of their recovery. In addition to those factors
that result in Contingent Resources being classified as such,
Prospective Resources are classified as such due to the absence of
proximate delineation drilling.
>>
NETBACKS
We provide a financial outlook of our estimated netback for Phase 1 of
the Project that was last updated in our third quarter MD&A dated October 28,
2008. The netback calculation shown below is consistent with this most recent
update and includes our estimates of revenue, royalties, operating costs and
General and Administrative (G&A) expenses per barrel of product sold.
This financial outlook is intended to provide investors with a measure of
the ability of our Project to generate netbacks assuming full production
capacity. We believe that the ability of the Project to generate cash to fund
interest payments and future phases of development is a key advantage of our
Project and important to our investors. The netback measure is the most
appropriate financial gauge to demonstrate this ability as corporate costs,
interest, and other non-cash items are excluded from the calculation. The
financial outlook may not be suitable for other purposes. Netbacks generated
by our Project are expected to be lower than shown in this outlook in the
years following start-up due to the lower production volumes during ramp-up
and an initially higher steam-to-oil ratio (SOR). The netback calculation as
presented is a non-GAAP measure. The closest GAAP measure to the netback
calculation is cash flow from operations. However, cash flow from operations
includes many other corporate items that affect cash and are independent of
the operations of the Project.
The actual netbacks achieved by the Project could differ materially from
these estimates. The material risk factors that we have identified toward
achieving these netbacks are as outlined in the Forward-Looking Information
section of this document and in our 2007 Annual Information Form (AIF). In
particular; the SAGD and Long Lake Upgrader facilities may not operate as
planned; the operating costs of the Project may vary considerably during the
operating period; our results of operations will depend upon the prevailing
prices of oil and natural gas in the worldwide market and those prices can
fluctuate substantially; we will be subject to foreign currency exchange
fluctuation exposure; and our operating cash flows will be directly affected
by the applicable royalty regime relating to our business. The key assumptions
relating to the netback estimate are set out in the notes beneath the table.
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Estimated Future Project Netbacks(1)
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In CDN$/bbl Post-payout Pre-payout
------------------------------------------------------------
$/bbl $/bbl
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Revenue(1,2) $ 86.33 $ 86.33
Royalties and G&A(3) (8.43) (3.84)
Operating costs(4)
Natural gas(5) (3.90) (3.90)
Other variable(6) (2.76) (2.76)
Fixed (12.82) (12.82)
Property taxes and insurance(7) (3.55) (3.55)
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Netback $ 54.87 $ 59.46
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Notes:
(1) The per barrel amounts are based on the expected yield for the
Project of 57,700 bbl/d of PSC(TM) and 800 bbl/d of butane, and
assume that the Upgrader will have an on-stream factor of 96 percent.
These numbers are cash costs only and do not reflect non-cash
charges. See "Forward-Looking Statements."
(2) For purposes of this projection, we assume a WTI price of US$75/bbl,
foreign exchange rates of CDN$1.00 to US$0.85 and an electricity
sales price of $106 per megawatt hour. Revenue includes sale of
PSC(TM), bitumen, butane and electricity.
(3) Royalties are calculated based on a light/heavy differential of
30 percent of WTI. We anticipate payout for royalty purposes to occur
in approximately 2022 based on the assumptions noted.
(4) Costs are in 2009 dollars.
(5) Natural gas costs are based on our long-term estimate for a SOR of
3.0.
(6) Includes approximately $1.00/bbl for greenhouse gas mitigation costs
based on an approximate average 20 percent reduction of CO(2)
emissions at a cost of $20 per tonne of CO(2).
(7) Property taxes are based on expected mill rates for 2009.
>>
Sustaining capital costs required to maintain production at design rates
of capacity are estimated to be approximately $8 to $9 per barrel of PSC(TM),
assuming full design rate production adjusted for long-term on-stream
expectations. The netbacks as shown are prior to abandonment and reclamation
costs. We do not include these costs due to the long-term nature of our
assets.
CAPITAL EXPENDITURES
Our financial condition to date has been affected primarily by capital
expenditures in connection with the construction, commissioning and start-up
of the Project, related financings and the capital expenditures associated
with the development of future phases.
The Project is essentially complete as of December 31, 2008. The
remaining capital costs relate to the completion of the steam expansion
project, expected in 2009, and the ash processing unit in the following year.
The cost to complete these two projects is approximately $45 million net to
OPTI.
The table below identifies historical expenditures incurred by us in
relation to the Project, other oil sands activities and other capital
expenditures.
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Year ended Year ended Year ended
In millions 2008 2007 2006
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Long Lake Project - Phase 1
Upgrader $ 282 $ 529 $ 476
SAGD 195 282 440
Sustaining capital and
capitalized operations 164 54 -
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Total Long Lake Project 641 865 916
Other oil sands activities 134 96 140
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Total oil sands expenditures 775 961 1,056
Capitalized interest 177 130 47
Other capital expenditures 35 17 6
Realized gain on foreign currency
hedging instruments (114) - -
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Total cash expenditures 875 1,108 1,109
Non-cash capital charges 309 (212) 66
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Total capital expenditures $ 1,184 $ 896 $ 1,175
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For the year ended December 31, 2008, we incurred capital expenditures of
$1,184 million. Phase 1 expenditures related to Upgrader and SAGD were
primarily related to the completion of construction, commissioning and
start-up of the Upgrader, and ongoing construction of the steam expansion
project. Sustaining capital in 2008 related primarily to the installation of
electric submersible pumps on some of our wells and engineering and resource
delineation for future Phase 1 well pads.
For the year, our share of the net SAGD operations was a net cost of $101
million. The SAGD operating results during the year were comprised of Premium
Synthetic Heavy (PSH) sales of $268 million, power sales of $19 million,
operating costs of $141 million, diluent and feedstock volumes consumed costs
of $236 million and transportation costs of $11 million. These operating
results reflect early stage SAGD operations and relatively low production
volumes during the second half of 2008. During the three months ended
September 30, 2008, our net SAGD operating results resulted in a cost of $5
million. During the three months ended December 31, 2008, our net SAGD
operating results resulted in a cost of $96 million. The fourth quarter net
operations costs were due in part to natural gas purchases of $22 million and
diluent purchases of $70 million; with the start-up of the Upgrader in January
2009, these costs will largely be avoided. Continuing challenges with SAGD
surface equipment also kept volumes relatively low in the quarter. As a result
of the timing of certain of our purchases and light heavy spreads during the
fourth quarter, our diluent costs approximated our revenue from PSH. We will
not have exposure to bitumen blend revenue or diluent costs in periods when
the Upgrader is in normal operation.
The expenditures of $134 million for other oil sands activities during
the year related to engineering costs and resource delineation for future
phases. This was comprised primarily of $56 million related to engineering and
regulatory work, $55 million related to core hole delineation and seismic
costs associated with future phases of development and $7 million in contract
cancellation costs related to a reduction in the scope of our 2008/2009 winter
drilling program.
Capitalized interest includes interest of $160 million on our senior
secured notes (Notes) and $17 million with respect to our revolving credit
facilities. The other capital expenditures of $36 million in the period
related primarily to $21 million on corporate assets and $15 million for costs
associated with the working interest sale to Nexen. Partially offsetting these
costs is a realized gain of $114 million related to our foreign currency
contracts.
The $309 million of non-cash capital charges related primarily to a $373
million capitalized translation loss with respect to the re-measurement of our
U.S.-dollar-denominated long-term debt, cash and interest reserve account, and
a charge of $25 million for capitalized future taxes. The $373 million
translation loss was primarily the result of the translation to Canadian
dollars of our $1,750 million U.S.-dollar-denominated debt, due to a change in
the exchange rate from CDN$0.99 to US$1.00 at the end of 2007 to CDN$1.22 to
US$1.00 at the end of 2008. The translation loss was partially offset by
realized gains of $114 million and unrealized gains of $91 million on forward
exchange hedging instruments.
<<
RESULTS OF OPERATIONS
Year Ended December 31, 2008
----------------------------
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In millions 2008 2007 2006
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Interest income $ 6 $ 13 $ 10
Impairment related to asset sale 392 - -
General and administrative 18 14 10
Amortization and accretion 6 2 22
Financing charges 1 12 -
Realized loss (gain) on commodity
contracts (2) - -
Unrealized loss (gain) on commodity
contracts (67) 4 -
Future tax expense (recovery) (85) (9) (12)
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>>
(x) Interest Income
For the year ended December 31, 2008 interest income decreased to $6
million from $13 million in 2007. The decrease was due to a decline in average
cash and cash equivalent balances as well as lower interest rates on
investments.
<<
Expenses, gains and losses
--------------------------
(x) Impairment Related to Asset Sale
>>
To consider impairment as of December 31, 2008, assets were grouped into
categories of depreciable assets, resource assets and unproved properties
based on the nature of the asset and an assessment of its depreciation basis.
Each asset type was assessed individually for impairment.
We allocated the sales proceeds to each asset type based on an estimate
of fair value. The sales proceeds allocated to depreciable assets were lower
than the book value of the asset; as a result, an impairment before taxes of
$392 million was recorded in 2008. The sales proceeds allocated to resource
assets did not alter the depletion rate by greater than 20 percent and, as a
result, no gain or loss was recorded. The sales proceeds for resource assets
will be recorded as a reduction to book value as of completion of the sale in
2009. The sales proceeds for unproved properties will be recorded as a
reduction to book value as of completion of the sale in 2009. All of the
Company's remaining assets were subject to a ceiling test and cost recovery
test which concluded no further impairment existed. The ceiling test is
described in Note 2 of the financial statements.
With respect to the assets sold and the related impairment, there were a
number of business conditions which led to the sale and the impairment. These
factors include: restricted access to capital for OPTI as well as potential
purchasers of our assets; relatively low and declining commodity prices during
the second half of 2008; relatively low SAGD production volumes and delayed
start-up of the Upgrader. We expect that as these conditions improve, the fair
value of our assets will also increase.
(x) General and Administrative
For the year ended December 31, 2008, G&A expenses increased to $18
million from $14 million in 2007. The increase for 2008 is due to higher
levels of corporate staffing.
(x) Amortization and Accretion
For the year ended December 31, 2008, amortization and accretion expenses
were $6 million compared to $2 million in 2007. For 2008, the expense was
primarily related to an increase in the amortization of corporate assets.
(x) Financing Charges
For the year ended December 31, 2008, financing charges were $1 million
compared to $12 million in 2007. Financing charges relate to the new $150
million revolving debt facility established in June 2008 and to the issuance
of US$750 million in senior secured notes in 2007. Our policy is to expense
financing costs as incurred.
(x) Realized Gain on Commodity Contracts
For the year ended December 31, 2008, we had a realized gain of $2
million related to our US$50/bbl commodity puts.
(x) Unrealized Loss (Gain) on Commodity Contracts
For the year ended December 31, 2008, we had a gain of $67 million
compared to a loss of $4 million in 2007. The gain in 2008 was due to an
increase in the fair value of our commodity contracts put in place for 2009
production. During 2008, spot prices for WTI decreased from approximately
US$92/bbl at the beginning of the year to approximately US$41/bbl at year-end.
(x) Future Tax Expense (Recovery)
Future tax expense for the year ended December 31, 2008 is a recovery of
$85 million compared with $9 million in the corresponding period of 2007. The
recovery of future taxes in 2008 was primarily due to a reduction in book
value associated with the impairment of assets and the realized cross currency
swap gains, offset by future tax implications of foreign exchange movements
and flow-through share renunciations.
(x) Foreign Exchange Hedging Instruments
OPTI is exposed to foreign exchange rate risk on our
U.S.-dollar-denominated debt. To partially mitigate this exposure, we have
entered into US$875 million of foreign exchange forwards to manage our
exposure to repayment risk on our U.S.-dollar-denominated long-term debt. The
forward contracts provide for the purchase of U.S. dollars and the sale of
Canadian dollars at a rate of approximately CDN$1.17 to US$1.00 with an expiry
in April 2010. With respect to our U.S.-dollar-denominated debt, we believe
that these forward contracts provide protection against a decline in the value
of the Canadian dollar below CDN$1.17 to US$1.00 on a portion of our debt. The
period-end value of the forwards is an asset of $32 million. As noted under
"Liquidity", the value of these derivatives affects our debt covenants as the
value of these contracts is included in the measurement of our debt for
covenant purposes.
During 2008, the fair value adjustment for each of these contracts at the
end of each contract period is capitalized to property plant and equipment as
the underlying debt instrument was used to fund development of our Project.
The value of the currency derivatives increased from the inception of the
contracts due to a weakening Canadian dollar as compared to the U.S. dollar.
During the year ended December 31, 2008, we had a realized gain of $114
million.
<<
SELECTED ANNUAL Information
-------------------------------------------------------------------------
In millions
(except per share amounts) 2008 2007 2006
-------------------------------------------------------------------------
Interest income $ 6 $ 13 $ 10
Net loss (257) (9) (10)
Net loss per share, basic and diluted (1.31) (0.05) (0.06)
Total assets 4,558 3,837 3,374
Total long-term liabilities 2,656 1,831 1,773
-------------------------------------------------------------------------
>>
The amount of interest income in each year is primarily the result of
cash and cash equivalents available for investment. The amount of cash in each
year is influenced by the size and timing of financing activities, as well as
capital expenditures related to project development. The net loss has been
influenced by increasing general and administrative expenses as well as
fluctuations in future tax recoveries. Amortization expense increased
significantly in 2007 as a result of the expensing of pre-financing costs
associated with the cancellation of various credit facilities, thereby
increasing the net loss for the year. During 2008, we recorded a before tax
impairment of assets as a result of our working interest sale of $392 million
and a total future tax recovery of $85 million. Our total assets have been
increasing continuously as a result of expenditures on the Project and future
phase development, offset by the asset impairment at December 31, 2008.
Increases in long-term financial liabilities are a result of a weaker Canadian
dollar increasing the measurement amount of our U.S.-dollar-denominated debt
and borrowings under our revolving credit facilities.
<<
Summary Financial Information
-------------------------------------------------------------------------
2008
In millions ---------------------------------------
(except per share amounts) Q4 Q3 Q2 Q1
-------------------------------------------------------------------------
Interest income $ 2 $ 1 $ 1 $ 2
Net earnings (loss) (250) 3 (8) (2)
Earnings (loss) per share,
basic and diluted (1.27) 0.02 (0.04) (0.01)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
2007
In millions ---------------------------------------
(except per share amounts) Q4 Q3 Q2 Q1
-------------------------------------------------------------------------
Interest income $ 3 $ 3 $ 2 $ 5
Net earnings (loss) 6 (13) (2) -
Earnings (loss) per share,
basic and diluted 0.03 (0.07) (0.01) -
-------------------------------------------------------------------------
>>
Quarterly variations in interest income are primarily the result of the
amount of cash and cash equivalents available for investment during the
applicable period. The amount of cash and cash equivalents is influenced by
the size and nature of financing activities and the level of investing
activities during the period. Earnings have been influenced by fluctuating
interest income, increasing levels of G&A expenses and fluctuating future tax
expense. In the third quarter of 2007, we expensed financing charges of $11
million, which increased our loss during the period. During the fourth quarter
of 2007, we had a $9 million recovery of future taxes primarily as a result of
a reduction in the applicable federal tax rate that increased our earnings.
During the second quarter of 2008, we had a $6 million loss on commodity
contracts that increased our loss during the period. During the fourth quarter
of 2008, we had a pre-tax asset impairment for accounting purposes related to
our working interest sale of $392 million and a future tax expense recovery,
primarily related to this impairment, of $85 million.
SHARE CAPITAL
At January 31, 2009, OPTI had 195,929,526 common shares and 7,150,116
common share options outstanding. The common share options have a weighted
average exercise price of $13.14 per share. At January 31, 2009, OPTI's fully
diluted shares outstanding were 203,079,642.
Effective November 2008, 5,991,000 common share warrants with an exercise
price of $14.75 per share expired without being exercised. Effective June
2008, $202 million of call obligations with an exercise price of $2.20 per
share expired without being exercised.
<<
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
---------
>>
For the year ended December 31, 2008, cash used by operating activities
was $7 million, cash provided by financing activities was $651 million and
cash used in investing activities was $747 million. These changes, combined
with a gain on our U.S.-dollar-denominated cash of $9 million, resulted in a
decrease in cash and cash equivalents during the year of $93 million.
During 2008 we funded our capital expenditures and ongoing start-up
activities from existing working capital and borrowings under our credit
facilities. In 2009, sales proceeds from the working interest sale to Nexen,
operating cash flow and availability under our revolving credit facilities are
expected to fund our capital expenditures.
After completion of the working interest sale to Nexen, the Company will
have cash and unused credit facilities of approximately $450 million. In order
to continue to access the revolving credit facility, we are required to meet a
first lien to EBITDA covenant commencing in the third quarter of 2009. The
most significant risk to us not achieving this covenant is lower than expected
bitumen production and associated PSC(TM) sales. Commodity pricing is a less
significant risk in 2009 as a substantial portion of our production is hedged.
We have hedged 6,000 bbl/d at a net price of approximately US$76/bbl, which is
a substantial portion of our expected 2009 PSC(TM) sales volume. An additional
500 bbl/d of 2009 production is hedged with a US$77/bbl swap (risks associated
with our hedging instruments are discussed in more detail under "Financial
Instruments", below). If we have lower than expected SAGD production or lower
PSC(TM) sales, we may have to repay amounts outstanding under the revolving
credit facility or may be prevented from further borrowings. The majority of
our operating costs and interest costs are fixed. Aside from changes in the
price of natural gas, our costs will neither decrease nor increase
significantly as a result of fluctuations in WTI prices other than with
respect to royalties, which increase at WTI prices higher than $55/bbl.
We have semi-annual interest payments of US$71 million in June and
December of each year until maturity of the Notes in 2014. Also, we estimate
our share of capital expenditures required to sustain production of Phase 1 at
or near planned capacity for the Project will be approximately $60 million per
year for the next five years. We expect to fund these payments from operating
cash flow and from existing financial resources.
A significant portion of our capital budget for 2009 has been pre-funded.
As part of the working interest sale to Nexen, we provided $85 million to
Nexen in January to be applied against our working interest share of the 2009
joint venture capital budget of $114 million net to OPTI. On a gross basis,
the budget is $325 million of which approximately $200 million relates to
sustaining capital including the completion of an additional well pad, $100
million relates to Phase 2 engineering and $25 million relates to future
phases and resource development.
Recent developments in capital markets have restricted our access to new
debt and equity. Although our current financial resources are considered
sufficient for the next 12 to 24 months, further deterioration of commodity
prices, delays in ramp-up of SAGD production, or operating issues with the
SAGD or Upgrader operations could result in additional funding requirements
earlier than we have estimated. Should the Company require such funding, it
may be difficult to obtain such financing on reasonable terms.
If Phase 2 is sanctioned, which is not currently scheduled for
consideration prior to mid-2010, we expect possible future capital
requirements in excess of operating cash flows. Unless we have stable
operations at or near capacity for the Project and high commodity prices, such
external financing requirements would be significant. We expect that these
financing requirements will come at a higher cost and contain more
restrictions than the financings completed to date by OPTI. Current market
conditions would not support such a financing requirement so some improvement
will be required in order to support such development. In addition, our joint
venture partner may evaluate the economics of future phases differently than
we do and will likely have a different evaluation of the ability to fund this
development. As a result, Nexen may decide to proceed with development of
future phases, which may result in OPTI having to reduce our working interest
in such future phases.
Our debt facilities contain a number of provisions that serve to limit
the amount of debt we may incur. With respect to our revolving credit
facility, the key maintenance covenants are with respect to debt to
capitalization and the ratio of debt outstanding under the revolving credit
facility to EBITDA. Maintenance covenants are important as they are ongoing
conditions that must be satisfied to provide continued access to the revolving
credit facility.
The first lien to EBITDA covenant, as amended in January 2009, is
measured quarterly and requires that this ratio is lower than 2.5:1 commencing
for the quarter ended September 30, 2009. The first three measurements of
EBITDA for this covenant will annualize EBITDA as measured from July 1, 2009,
to the end of the applicable covenant period. Thereafter, EBITDA will be based
on a trailing four quarters. Realized cash gains on commodity contracts, such
as our existing puts and forwards, are included in EBITDA for the purposes of
the covenant. If we are unable to generate sufficient EBITDA, we may be
required to repay all or a portion of amounts outstanding under that facility
or be unable to make additional borrowings under the revolving credit facility
prior to the end of a covenant quarter or will be required to request and
obtain approval for a waiver from our lenders under the facility.
The covenant as amended in January 2009 for debt to capitalization
requires that we do not exceed a ratio of 70 percent as calculated on a
quarterly basis. The covenant is calculated based on the book value of debt
and equity. The book value of debt is adjusted for the effect of any foreign
exchange derivatives issued in connection with the debt that may be
outstanding. At December 31, 2008, this means that our debt would be reduced
by the value of our foreign exchange forward in the amount of $32 million.
With respect to U.S.-dollar-denominated debt, for purposes of the debt to
capitalization ratio, the debt is translated to Canadian dollars based on the
average exchange rate for the quarter. The debt to capitalization is therefore
influenced by the variability in the measurement of the foreign exchange
forward, which is subject to mark to market variability and average foreign
exchange rate changes during the quarter.
In respect of new borrowings under the $350 million revolving credit
facility prior to reaching completion of the Project, we are required to have
sufficient funds (including cash and undrawn revolver) to fund our share of
remaining Project costs.
With respect to our senior secured notes, the covenants are in place
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 discounted at 10 percent. Based on our 2008 reserve
report, as adjusted for our new working interest in the joint venture, we have
sufficient capacity under this test to incur additional debt beyond our
existing $350 million revolving credit facility and existing senior secured
notes. Other leverage factors, such as debt to capitalization and total debt
to EBITDA, are expected to be more constraining than this limitation.
<<
Capital Resources
-----------------
>>
Our long-term debt currently consists of US$1,750 million of senior
secured notes and a $350 million revolving credit facility. At February 17,
2009, we have approximately $280 million of cash on hand and have drawn $87
million on our $350 million revolving credit facility.
At December 31, 2008, our cash resources included cash of $217 million.
Our cash and cash equivalents are invested exclusively in money market
instruments issued by major Canadian banks. At December 31, 2008, $486 million
had been drawn on the $500 million revolving credit facility and $146 million
had been drawn on the $150 million revolving credit facility. As of February
17, 2009, after using proceeds from the working interest sale to Nexen to fund
a partial pay-down, $87 million remained outstanding on the $350 million
revolving credit facility and our $150 million revolving credit facility had
been repaid and cancelled. We eliminated the working capital deficiency that
existed at December 31, 2008 as a result of the completion of the working
interest sale to Nexen on January 27, 2009.
CREDIT RATINGS
OPTI, OPTI's revolving credit facility and OPTI's Notes are currently
rated by Moody's Investor Service (Moody's) and Standard and Poors (S&P).
Please refer to the table below for the respective ratings.
<<
Type of Security Moody's S&P
---------------- ------- ---
OPTI Corporate Rating B1 B+
Revolving Credit Facility Ba3 BB
8.25% Notes B2 BB
7.875% Notes B2 BB
>>
The Moody's ratings have been under review for potential downgrade by
Moody's since November 2008. The S&P ratings have been on credit watch with
negative implications since November 2008.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the rating
organization.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
Commitments for contracts and purchase orders at December 31, 2008,
related to project development are $22 million based on a working interest of
50 percent.
During the 12 months ended December 31, 2008, our long-term debt
increased by $486 million due to borrowings under our $500 million revolving
credit facility and the short-term portion increased by $146 million due to
borrowings on our $150 million revolving credit facility.
The following table shows our contractual obligations and commitments
related to financial liabilities at December 31, 2008. This table is prior to
the January 2009 working interest sale to Nexen, which would reduce payments
under our capital leases, operating leases and contracts and purchase orders
by 30 percent.
<<
-------------------------------------------------------------------------
In millions 2014
less than 181-365 2010- 2012- or
Total 181 days days 2011 2013 later
----- --------- ------- ----- ----- -----
-------------------------------------------------------------------------
Accounts payable
and accrued
liabilities $ 200 $ 195 $ 5 $ - $ - $ -
Short-term debt(1) 146 146 - - - -
Long-term debt
(Notes)(2) 3,166 86 86 345 345 2,304
Long-term debt
(Revolving)(3) 486 136 - 350 - -
Capital leases(4) 106 2 3 9 8 84
Operating leases and
other commitments(5) 115 6 7 28 29 45
Contracts and
purchase orders(6) 22 22 - - - -
-------------------------------------------------------------------------
Total commitments $ 4,241 $ 593 $ 101 $ 732 $ 382 $ 2,433
-------------------------------------------------------------------------
Notes:
(1) Consists of CDN$146 million of borrowings on our short-term
revolving debt facility. This facility was repaid and cancelled
in January 2009.
(2) Consists of US$1,000 million and US$750 million under our Notes.
Amounts represent scheduled principal and interest payments.
(3) Consists of $486 million drawn on the revolving credit facility.
The repayment represents only the required reduction to reduce
the facility to $350 million in January 2009 and the final
repayment of the facility at its scheduled maturity in 2011. In
addition, 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 be estimated due to the
revolving nature of the facility and variable interest rates. See
"Liquidity" section for repayments completed as part of working
interest sale.
(4) Consists of our share of future payments under our product
transportation agreements with respect to future tolls during the
initial contract term at a working interest of 50 percent.
(5) Consists of our share of payments under our product
transportation agreements with respect to future tolls during the
initial contract term at a working interest of 50 percent. This
amount also includes our share of future commitments with respect
to rail traffic transportation assuming a 50 percent working
interest.
(6) Consists of our share of commitments associated with contracts
and purchase orders in connection with the Project and our other
oil sands activities.
>>
CONFERENCE CALL
OPTI Canada Inc. (OPTI) will conduct a conference call at 7:00 a.m.
Mountain Time (9:00 a.m. Eastern Time) on Wednesday, February 25, 2009 to
review the Company's year end 2008 financial and operating results. Sid
Dykstra, President and Chief Executive Officer, and Travis Beatty, Chief
Financial Officer, will host the call. To participate in the conference call,
dial:
<<
(800) 732-6179 (North American Toll-Free)
(416) 644-3417 (Alternate)
>>
Please reference the OPTI Canada conference call with Sid Dykstra when
speaking with the Operator.
A replay of the call will be available until March 10, 2009, inclusive.
To access the replay, call (416) 640-1917 or (877)-289-8525 and enter passcode
21295303, followed by the pound sign.
This call will also be webcast, and can be accessed on OPTI Canada's
website under "Presentations and Webcasts" in the "For Investors" section. The
webcast will be available for replay for a period of 30 days. The webcast may
alternatively be accessed at:
http://phx.corporate-ir.net/phoenix.zhtml?p(equal sign)irol-eventDetails&c(equal sign)178509&ev
entID(equal sign)2079761.
ABOUT OPTI
OPTI Canada Inc. is a Calgary, Alberta-based company focused on
developing major oil sands projects in Canada using our proprietary
OrCrude(TM) process. Our first project, Phase 1 of Long Lake, consists of
72,000 barrels per day of SAGD (steam assisted gravity drainage) oil
production integrated with an upgrading facility. The upgrader uses the
OrCrude(TM) process combined with commercially available hydrocracking and
gasification. Through gasification, this configuration substantially reduces
the exposure to and the need to purchase natural gas. On a 100 percent basis,
the Project is expected to produce 58,500 bbl/d of products, primarily 39
degree API Premium Sweet Crude with low sulphur content, making it a highly
desirable refinery feedstock. Due to its premium characteristics, we expect
PSC(TM) to sell at a price similar to West Texas Intermediate (WTI) crude oil.
The Long Lake Project is being operated in a joint venture with Nexen Inc.
OPTI holds a 35 percent working interest in the joint venture. OPTI's common
shares trade on the Toronto Stock Exchange under the symbol OPC.
FORWARD-LOOKING INFORMATION
Certain statements contained herein are forward-looking statements,
including, but not limited to, statements relating to: the expected production
performance of the Long Lake Project and OPTI's other business prospects,
expansion plans and strategies; the cost, development and operation of the
Long Lake Project and OPTI's relationship with Nexen Inc.; OPTI's financial
outlook respecting the estimate of the netback for Phase 1 of the Project;
OPTI's anticipated financial condition and liquidity over the next 12 to 24
months; and our estimated future tax liability. Forward-looking information
typically contains statements with words such as "intends," "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 which 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 Long Lake 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 the PSC(TM) output of the OrCrude(TM) Upgrader; foreign currency exchange
rates and hedging risks; government regulations and royalty regimes; and the
degree of risk that governmental approvals may be delayed or withheld. 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 (AIF) 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.
Reserves and Resources Estimates: The estimates of resources and of
economically recoverable bitumen reserves contained herein are forward-looking
statements. The estimates are based upon a number of factors and assumptions
made as of the date on which the reserve and resource estimates were
determined, such as geological and engineering estimates which have inherent
uncertainties, the assumed effects of regulation by governmental agencies and
estimates of future commodity prices and operating costs, all of which may
vary considerably from actual results. All such estimates are, to some degree,
uncertain and classifications of reserves are only attempts to define the
degree of uncertainty involved. The estimates contained herein with respect to
reserves and resources that may be developed and produced in the future have
been based upon volumetric calculations and upon analogy to similar types of
reserves and resources, rather than upon actual production history. Estimates
based on these methods generally are less reliable than those based on actual
production history. Subsequent evaluation of the same reserves and resources
based upon production history will result in variations, which may be
material, in the estimated reserves and resources. Additional information
relating to our Company, including our AIF, can be found at www.sedar.com.
%CIK: 0001177446
/For further information: Alison Trollope, Investor Relations Manager,
(403) 218-4705/
(OPC.)
CO: OPTI Canada Inc.
CNW 05:00e 25-FEB-09
