OPTI Canada provides operational update on Long Lake; outlook unsure

By Stephanie N. Rotondo

Portland, Ore., Feb. 10 - OPTI Canada Inc. held a conference call Thursday to discuss its operations and how that relates to the company's review of strategic alternatives.

The company did not, however, discuss its quarterly results, which were also released on Thursday.

Chris Slubicki, president and chief executive officer, focused on its Long Lake joint venture project with Nexen Inc. OPTI has said on several occasions that its viability relies heavily on increasing production at the site.

"Last year, we made some significant progress in this regard and some setbacks," Slubicki said.

For the first seven months of 2010, "we were on track," he said, as "reliable operations and positive ramp up" were achieved.

However, the company and the operator - Nexen, which owns a 65% stake - have been unable to continue that positive momentum since August. Because of operational issues, "that has made it difficult to reach a conclusion to our strategic alternative process."

OPTI has been reviewing its strategic alternatives since November 2009, when it hired Scotia Waterous Inc. and TD Securities Inc. On Feb. 1, Lazard Freres & Co. LLC came on board to assist in that review.

"It remains our objective and plan to complete a corporate transaction for OPTI and we will continue to pursue this path, although our current liquidity provides limited time to accomplish this," Slubicki said. "Working through our plant and reservoir issues is imperative to succeeding and finding a strategic transaction that will address our balance sheet and recognize value for the company.

Production issues a concern

In the fourth quarter of 2010, bitumen production improved over the third quarter, but not as much as was expected. December saw an increase in steam rates, which came to 172,000 for the month.

"That's a record," Slubicki noted.

But the high rates of stream did not result in an increase in bitumen production, which "could indicate a greater reservoir complexity than we originally anticipated," he said. In order to continue to ramp up production, Slubicki said it would be necessary to obtain more information on the site.

In November, both OPTI and Nexen forecast that it would produce, on average, 38,000 to 45,000 barrels of bitumen per day in 2011.

"With the delays we have faced, achieving this forecast is a risk unless operations improve in the near term," he said.

But Slubicki also noted that there were positives to be seen. Plant reliability improved and the company is operating 85 well pairs that are receiving steam and of those, 77 are capable of production. Another eight of the wells are in circulation mode.

OPTI hopes to have all 90 of its well pairs in production by the end of April.

"Our ability to transact is directly related to a positive ramp up, which we hope to demonstrate in 2011," he concluded.

Revenues up, loss narrows

For the fourth quarter, OPTI received C$81 million in revenues, compared to C$43 million in the same quarter of 2009. Net loss narrowed to C$26 million, or 9 cents per share, from a loss of C$212 million, or 75 cents per share, the year before.

For the fiscal year, net loss was C$274 million, versus C$306 million in 2009. Revenues were C$250 million, up from C$143 million the previous year.

As of Dec. 31, OPTI had C$363 million of cash and equivalents, including a C$190 million revolving credit facility. The company withdrew C$90 million from that facility in January.

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