Bankruptcy-protection proceedings began today under Canada’s Companies Creditors Arrangement Act, the company said in a statement. Opti has obtained C$375 million ($391 million) of new financing and backing from financial partners to restructure its debt, according to the statement.
Opti said in June it would miss an interest payment on its second-lien debt. The company, based in Calgary, has been selling debt to cover a shortfall in its operating budget as production at the Long Lake oil-sands site in northeastern Alberta, operated by partner Nexen Inc. (NXY), fails to meet targets.
“This is an unfortunate lesson that oil-sands projects are not for start-ups,” James Cole, who oversees about C$800 million as a money manager at Portland Investment Counsel Inc. in Calgary and doesn’t own the shares, said today in a telephone interview. The bankruptcy proceedings likely won’t have a “material impact” on the Long Lake project or on Nexen, he said.
Long Lake is one of dozens of projects that have attracted more than $200 billion in energy investments to Alberta to tap the largest oil deposits outside the Middle East. The project employs a technology that injects steam underground to release fossil fuels embedded in sand.
Trading of Opti’s shares was suspended before the open of the Toronto Stock Exchange. The stock closed yesterday at 12 cents, valuing the company at C$33.8 million.
As part of the debt restructuring, secured notes will be converted into new shares, Opti said. The company has the backing of creditors holding more than half the value of its notes and aims to complete the reorganization by Dec. 1.
“The recapitalization of our balance sheet will provide us with cash resources to continue to advance operations at Long Lake, as well as to begin development at Kinosis, with our operating partner Nexen,” Opti Chief Executive Officer Chris Slubicki said in the statement.
Standard & Poor’s Ratings Services lowered its long-term credit rating on Opti to ‘D’, the lowest level, from ‘SD’ following the company’s announcement to file for bankruptcy protection. Opti has C$2.47 billion of outstanding bonds maturing through 2014, according to Bloomberg data.
“Although the existing interest reserve account remains in our view sufficient to fund the first-lien debt interest payments until maturity, our ratings criteria place greater emphasis on the potential implications of insolvency proceedings,” S&P analysts Michelle Dathorne and Aniki Saha- Yannopoulos said in a note.
Franklin Advisers Inc., Fidelity Management & Research and Franklin Mutual Advisers Inc. are among investment funds that hold or have held Opti notes, according to data compiled by Bloomberg.
Nexen, based in Calgary, boosted its stake in the Long Lake project to almost two-thirds in 2008 with Opti maintaining a 35 percent stake in the operation. Brittney Price, a Nexen spokeswoman, didn’t respond to telephone messages seeking comment.
Opti and Nexen had taken longer than they planned to inject enough steam underground to heat up reserves of bitumen to make it flow into pipes at Long Lake. The companies are using more steam than they planned, which has raised costs and restrained production, Nexen said in February.
Ernst & Young Inc. has been appointed to monitor the bankruptcy proceedings and Opti is being advised by Lazard Freres & Co. and Macleod Dixon LLP. Holders of Opti notes are being advised by Canaccord Genuity Corp. and Bennett Jones LLP.
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