CNOOC Closes OPTI Deal

CNOOC Ltd. (CEO - Analyst Report) has closed its previously announced purchase of Canadian oil sands operator OPTI Canada Inc. The $2.1 billion transaction was first declared in July.

Estimated holdings of OPTI include about 195 million barrels of proved reserves, 534 million barrels of probable reserves, 1.1 billion barrels of contingent resources and 335 million barrels of prospective resources on its oil sands leases.

The transaction gave CNOOC a 35% working interest in the Long Lake oil-sands project in Alberta, which is Opti’s primary asset. Calgary-based energy firm Nexen Inc. (NXY - Analyst Report) enjoys ownership interest in the project with the remaining 65% stake. CNOOC has also gained interests in three other project areas in the Athabasca region of north-east Alberta.

The Long Lake project has failed to meet its production goals owing to a string of equipment failures and other glitches. These failures had prompted OPTI to file for bankruptcy in July.

The transaction comprised a consideration of $1.2 billion paid to holders of OPTI’s second lien notes, $37.5 million was paid to backstop parties, $34 million allocated to shareholders and assumed $825 million first lien notes.

CNOOC is the largest producer of offshore crude oil and natural gas in China. It mainly engages in exploration, development, production and sales of oil and natural gas. The company’s acquisition of OPTI has paved way for Chinese companies to take a direct ownership in Canada-based resources as opposed to the minority stakes it previously held. 

The latest transaction also shows the significance of oil sands business in CNOOC’s international portfolio. The company plans to take full advantage from its partnership with Nexen. It aims to fully exploit the development potential of the Long Lake project and the three other jointly owned oil sand leases.

CNOOC holds a Zacks #3 Rank, which is equivalent to a Hold rating for a period of one to three months. For the long term, we maintain a Neutral rating on the company.

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