China's CNOOC to buy Opti Canada in oil sands push

BEIJING Wed Jul 20, 2011 7:52am EDT

A logo of China National Offshore Oil Corp (CNOOC) is seen on the top of its headquarters in Beijing November 1, 2010. REUTERS/Petar Kujundzic

A logo of China National Offshore Oil Corp (CNOOC) is seen on the top of its headquarters in Beijing November 1, 2010.

Credit: Reuters/Petar Kujundzic

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BEIJING (Reuters) - China's top offshore oil producer CNOOC Ltd (0883.HK) has agreed to buy Opti Canada Inc OPC.TO for $34 million in cash and take on more than $2 billion in debt in a move that will ramp up Chinese investment in Canadian oil sands.

China has been scouring the globe for energy resources to feed its fast-growing economy, but has often run into regulatory, political and procedural hurdles for such deals.

Unconventional energy sources such as shale gas, coal-bed methane and oil sands are attracting increasing attention from China and elsewhere as traditional oil supplies dwindle.

"Canada has rich oil sands resources. They have lots of experience in running this kind of project. For CNOOC, they participate in stakes in order to learn the technology and gain operational experience," said Huang Jing, an analyst at Fubon Security Investment Trust Co. "Ultimately they aim to do oil sands projects in China."

CNOOC's move comes amid a flurry of global resource deals as cash-rich companies look to put funds to work. About $22 billion worth of cross-border resources deals have been launched in the past two weeks, according to Thomson Reuters data.

The announcement comes a week after Opti filed for bankruptcy protection. Last week, Opti said half of its secured creditors agreed to exchange their notes for a newly issued class of common shares and to invest $390 million into the company.

CNOOC will take over Opti's 35 percent interest in four oil sands projects in the northeast of Alberta. These projects are Long Lake, Kinosis, Leismer, and Cottonwood, with total proven reserves of 195 million barrels of bitumen.

Nexen Inc NXY.TO, a Canada-based global energy company, holds the remaining 65 percent of Long Lake, Opti's sole producing asset, and is the operator.

Long Lake project includes a steam-assisted gravity drainage operation, or SAGD, and an upgrader. The project is expected to produce approximately 72,000 barrels per day (bpd) of bitumen, and the upgrader to produce 58,500 bpd of products, mainly premium sweet crude. Over 30 years of bitumen production is expected at Long Lake, CNOOC said in a statement.

The other three oil-sand projects are undeveloped assets. Among them, Kinosis has regulatory approval for 140,000 bpd of SAGD production.

Opti Canada started reviewing its strategic options in November 2009 as it tried to deal then with its flagging share price due to initial production reliability issues at the oil-sands project.

Shareholders will receive $0.12 per share in cash, compared with Opti Canada's last traded price of C$0.115 a share. The stock has not traded since July 12 and has tumbled from a peak of C$25.40 in mid-2008.

The transaction includes $1.18 billion payable to holders of Opti's second-lien notes, $37.5 million payable to backstop parties and the assumption of $825 million first-lien notes, Opti Canada said on Wednesday.

The deal, which is to be effected by a plan of arrangement under Canada's Companies' Creditors Arrangement Act (CCAA), has been approved by Opti's board.

The deal still needs approval from Chinese and Canadian regulators, Canadian court approval and the backing of second-lien noteholders.

CNOOC last year agreed to pay $1.1 billion for a stake in a U.S. shale oil and gas field, testing the U.S. political climate for the first time since its 2005 failed bid for Unocal. It also paid C$122 million in 2005 for a 16.7 percent stake in privately held MEG Energy Ltd, which has been developing an oil-sands project in northern Alberta.

Not all China-Canada energy deals have come to fruition.

Encana's (ECA.TO) C$5.4 billion joint venture shale gas field deal with PetroChina (601857.SS) (0857.HK) collapsed last month after more than a year of negotiations.

The Opti transaction is expected to be completed in the fourth quarter of 2011.

CNOOC has been seeking overseas acquisitions aggressively in recent years. "North America, especially Canada, has become the company's important region for investment," said the chief financial officer of CNOOC Ltd. Zhong Hua at a press teleconference.

CNOOC shares fell 3.2 percent Wednesday on the Hong Kong Stock Exchange, underperforming the 0.46 percent rise in the Hang Seng Index .HSI.

"I think some investors may prefer CNOOC to spend money on organicals rather than overseas acquisitions," said Neil Beveridge, senior analyst at Sanford C. Bernstein.

(Additional reporting by Renju Jose in Bangalore; Editing by Lincoln Feast)

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