OPTI Canada Announces 2007 First Quarter Results



    TSX: OPC

    CALGARY, April 26 /CNW/ - OPTI Canada Inc. (OPTI) announced today the
Company's financial and operating results for the first quarter ended
March 31, 2007.
    First production of Premium Sweet Crude (PSC(TM)) from OPTI's Long Lake
Project (the Project), Canada's fourth and next integrated oil sands project,
is anticipated near the end of 2007. The Company is also advancing its future
phases of growth via a multi-stage expansion strategy to reach 180,000 barrels
per day (bbl/d) of PSC(TM) production capacity. Key developments in 2007 to
date include:

    
    -   Initiation and advancement of start-up activities at the main steam
        assisted gravity drainage (SAGD) plant including injection of first
        steam into the reservoir.
    -   Completion of over 85 percent of Upgrader construction, with a
        continued strong safety record.
    -   An increase in the project cost estimate of about 10 percent to
        $5.0 billion, primarily due to increased time for turnovers in the
        SAGD project and slower than planned progress on two Upgrader units.
    -   Continued progress of Long Lake Phase 2 engineering and planning
        activities in preparation for potential project sanctioning in 2008.
    -   Completion of the 2006/2007 winter drilling and seismic program to
        further advance OPTI's expansion plans.
    

    "We have successfully achieved our first major milestone in 2007 with
injection of steam into the Long Lake reservoir from our SAGD operations,"
said Sid Dykstra, President and Chief Executive Officer. "While the current
heated construction environment continues to represent a challenge, and has
made it necessary for us to revise our capital cost estimate, we remain
focused on achieving our primary goal of first commercial production of
synthetic crude. Upon achieving full design capacity, the Long Lake Project is
expected to produce approximately 60,000 bbl/d of high quality synthetic
crude, with low operating costs, for over 40 years."

    
    FINANCIAL SUMMARY (i)
    -------------------------------------------------------------------------
                                    Three months    Year ended    Year ended
                                  ended March 31,  December 31,  December 31,
                                            2007          2006          2005
    -------------------------------------------------------------------------
    Net loss                             $   nil       $   (10)      $    (2)
    -------------------------------------------------------------------------
    Capital expenditures
     incurred (ii)                           302         1,109           754
    -------------------------------------------------------------------------
    Working capital                          266           554           134
    -------------------------------------------------------------------------
    Shareholders' equity                 $ 1,408       $ 1,444       $ 1,382
    -------------------------------------------------------------------------
    Common shares outstanding
     (basic)(iii)(iv)                      172.8         172.7         156.8
    -------------------------------------------------------------------------

    (i)    Tabular amounts in millions of dollars and shares as applicable.
    (ii)   Non-cash additions are excluded.
    (iii)  After giving effect to the 2:1 share split to shareholders of
           record on June 1, 2006.
    (iv)   Common shares outstanding after giving effect to common share
           options and common share warrants would be 187.0 million common
           shares.
    

    LONG LAKE PHASE 1: First synthetic volumes expected in 2007

    Significant progress has been made on the Project. The SAGD central steam
boiler and water treatment facilities are essentially complete with work on
the cogeneration facilities continuing as planned. Start-up of the main SAGD
facilities is ongoing, and we began injecting steam into two of our 10 well
pads as of mid-April. Our plan is to commission a new pad at a rate of about
one pad per week until all wells are circulating steam. We expect all 81 well
pairs (10 pads) to be circulating steam by the end of the second quarter. The
first six months of SAGD operations will be focused primarily on heating the
reservoir, with bitumen production anticipated to ramp-up starting in the
third quarter. By the end of 2007, we expect bitumen production rates of
between 35,000 and 45,000 bbl/d (between 17,500 and 22,500 bbl/d net to OPTI)
with a steam oil ratio (SOR) of below 4.0. The long-term forecast SOR for the
Project is 3.0. During 2008, SAGD volumes are expected to continue to ramp-up
with completion of additional steam facilities. Long Lake SAGD operations are
expected to reach full design capacity of 72,000 bbl/d of bitumen production
in late 2008 or early 2009.
    Upgrader construction, which intentionally lags SAGD to ensure sufficient
bitumen production at start-up, is now over 85 percent complete. Start-up of
the OPTI-operated Upgrader continues to be forecast for the third quarter of
2007, with first production of PSC(TM) in the fourth quarter of this year.
During 2008, it is expected that the capacity of the Upgrader during ramp-up
will enable us to process all the forecasted SAGD volumes. As a result, the
Project is expected to be producing at full capacity of 58,500 bbl/d of
PSC(TM) in late 2008 or early 2009.
    The Project continues to experience cost pressures. More work hours than
previously forecast have been required to complete the SAGD central
facilities, and system turnover to operations has taken longer than expected.
On the Upgrader, progress and productivity on the sulphur plant and air
separation plant have been lower than expected, putting pressure on both cost
and schedule. The impact of these has caused the potential cost to complete
the project to be about 10 percent higher than the previous estimate, for a
total of $5.0 billion. Due to the dynamic and inflationary nature of the
current cost environment, and the complexities associated with start-up and
commissioning, a contingency reserve of $300 million ($150 million net to
OPTI) has been created to allow for potential increases in the number of work
hours required to complete construction and turnover to operations. To the end
of the first quarter, $4.26 billion had been incurred on the Project ($2.13
billion net to OPTI).

    PLANNING FOR FUTURE GROWTH: Phase 2 preparations ongoing, 2007
    delineation program complete

    In 2007, we plan to spend approximately $145 million on up-front
engineering of Phase 2 and additional delineation and evaluation to support
future phases. In the first quarter, approximately $43 million was spent on
these activities.
    The south end of the Long Lake lease will be the location of the SAGD
portion of Phase 2 of the Long Lake Project. An application for SAGD
regulatory approval was submitted in late 2006 in preparation for potential
project sanctioning in 2008. Regulatory approval is in place for the Phase 2
Upgrader.
    Development of the Phase 2 execution strategy, cost estimate and project
schedule continues with the plan to reach a level of approximately 30 percent
of engineering prior to sanctioning of the project. This level of engineering
is significantly higher than that of Phase 1 at the time the Project was
sanctioned to provide a higher degree of certainty on cost and execution
strategies, and maintain capital discipline in light of the highly active oil
sands construction environment.
    The timing of Phase 2 sanctioning will be contingent upon timing of SAGD
regulatory approval, the capital cost estimate, Phase 1 ramp-up performance
and commodity price environment. Other factors that may affect the economic
advancement of future phases include pending CO(2) regulations, pending
changes to the provincial royalty regime, and the recently announced phasing
out of the accelerated capital cost allowance by the Federal government.
    In order to preserve cash flow in the event of weak commodity prices,
OPTI has purchased US$50/bbl put options on a portion of 2008 synthetic crude
oil production. With detailed planning for Phase 2 underway, this provides
price protection on a base level of production while preserving oil price
upside potential.
    The 2006/2007 winter delineation program was completed in the first
quarter. A total of 140 core holes were drilled and 40 square miles of 3-D
seismic were completed on our lands to advance future phases of growth. The
program focuses on defining the location for the third phase of development to
ensure adequate time is available for planning and regulatory approval, as
well as providing information to support future phases of development.

    CORPORATE APPOINTMENT

    As announced in early April 2007, David Halford has been appointed Chief
Financial Officer of OPTI. Mr. Halford brings to OPTI over 20 years of
financial management and strategic planning experience focused on the energy
industry, including corporate and project finance. Most recently, Mr. Halford
held the position of Vice President and Chief Financial Officer at BA Energy
in Calgary. Prior, Mr. Halford was the Chief Financial Officer of Irving Oil,
a New Brunswick-based refiner and marketer of petroleum products. Before
joining Irving Oil, Mr. Halford held a variety of senior-level corporate
finance and accounting roles at Deloitte and Touche, LLP, Price Waterhouse and
Maclean Hunter Limited, all of Toronto. Mr. Halford is a Chartered Accountant
and holds a B.A. from the University of Western Ontario.

    FACTORS AFFECTING OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    Investments to Date
    -------------------
    The estimated total cost of the Project is $5.0 billion plus a
contingency reserve of $300 million. Our share of the cost excluding the
contingency reserve is $2.5 billion, of which we have incurred $2.13 billion
in cumulative expenditures. The table below identifies expenditures incurred
by us in the referenced periods for the Project, other oil sands development
and other capital expenditures.

    
    -------------------------------------------------------------------------
                                           Three
                                    months ended    Year ended    Year ended
                                        March 31,  December 31,  December 31,
                                            2007          2006          2005
    -------------------------------------------------------------------------
    Long Lake Project - Phase 1

      Upgrader                           $   134       $   476       $   368

      SAGD                                    82           440           310

      Sustaining capital and
       capitalized operations                 10             -             -
    -------------------------------------------------------------------------
    Total Long Lake Project                  226           916           678

    Other oil sands activities                43           140            56

    Other capital expenditures                33            53            20
    -------------------------------------------------------------------------
    Total cash expenditures                  302         1,109           754

    Non-cash capital changes                 (18)           66            11
    -------------------------------------------------------------------------
    Total capital expenditures           $   284       $ 1,175       $   765
    -------------------------------------------------------------------------
    

    Capital Expenditures
    --------------------
    During the three months ended March 31, 2007, we incurred capital
expenditures of $284 million. Expenditures on the Project of $226 million
reflect primarily on-site construction. For SAGD construction, these costs
were primarily incurred in the central plant and cogeneration facilities and
in start-up and commissioning costs. For Upgrader construction, these costs
were primarily incurred in the OrCrude(TM), gasification and sulphur
facilities and start-up and commissioning costs.
    We also invested $43 million in other oil sands activities, $33 million
in other capital expenditures and had a recovery of $18 million related to
non-cash items. Expenditures of $43 million for other oil sands activities
during the period relate to engineering costs and resource delineation. Other
capital expenditures of $33 million relate to $32 million of capitalized
interest and standby charges in connection with our long-term debt and
$1 million of corporate capital costs. The $18 million recovery of non-cash
capital changes relates primarily to a $16 million capitalized foreign
exchange gain with respect to the re-measurement of our U.S. dollar (USD)
denominated long-term debt and cash. In addition, there are capital lease
additions of $3 million, a capitalized future tax recovery of $6 million and
an unrealized hedging loss of $1 million related to the interest rate swap.

    Operation of the Project
    ------------------------
    Once we complete the construction of the Project and commence commercial
operations, we expect that our revenues from the Project will primarily
consist of PSC(TM) revenue and that our cash operating costs relating to the
Project will primarily consist of labour, maintenance and the purchase of
energy. Our results of operations will principally be driven by production
rates, plant capacity and reliability, oil prices and natural gas costs. Our
results of operations will also be affected by production factors, such as our
success in recovering bitumen using the SAGD process and the Project's SOR.

    (*) Revenues
    As we have not yet completed the Project, our historical revenues consist
entirely of interest income. Interest income consists of interest on cash,
cash equivalents and short-term investments and is affected by average
balances of interest-bearing instruments and associated interest rates.

    (*) Expenses
    Our expenses have historically consisted of general and administrative
(G&A) expenses, amortization and accretion expenses and income taxes. G&A
expenses primarily consist of salaries and information technology costs. Prior
to 2007, amortization and accretion expenses primarily relate to amortization
of deferred financing charges. In 2007, the expense relates to amortization of
corporate assets. Income taxes until the second quarter of 2006 consist of
capital taxes and future tax expense or recovery. Commencing in the third
quarter of 2006, income taxes consist entirely of future tax expense or
recovery. We do not currently pay income taxes. The timing of the payment of
income taxes in the future will be primarily influenced by the construction
cost of the Project, commodity prices, foreign exchange rates, operating
costs, interest rates and future phase activities.

    RESULTS OF OPERATIONS

    Interest Income
    ---------------
    For the three months ended March 31, 2007, interest income increased to
$5 million from $1 million in the corresponding period in 2006. The increase
was due to an increase in average cash and cash equivalent balances as a
result of the proceeds from debt issuances in late 2006.

    General and Administrative Expenses
    -----------------------------------
    For the three months ended March 31, 2007, G&A expenses increased to
$3 million from $2 million in the corresponding period in 2006. The increase
was due to increased levels of corporate staff and information technology
expenditures.

    Loss on commodity contract
    --------------------------
    For the three months ended March 31, 2007, we had a loss of $1 million
compared to $nil in the corresponding period in 2006. During the period, we
entered into a put option with respect to 4,000 barrels per day of production
for 2008 with an exercise price of USD $50. The loss was due to the fair value
measurement of our commodity contract as a result of an increase in WTI oil
prices at the end of the period.

    Amortization and Accretion Expenses
    -----------------------------------
    For the three months ended March 31, 2007, amortization and accretion
expenses are $nil compared to $1 million in the same period in 2006.
Amortization and accretion in the prior period primarily related to
amortization of deferred financing charges which have been written off as of
January 1, 2007 related to the adoption of a new accounting policy.

    Taxes
    -----
    Capital taxes are $nil for the three months ended March 31, 2007,
compared with an expense of $1 million in the same period in 2006. In the
second quarter of 2006, federal legislation was enacted that provided for the
elimination of the large corporation tax effective January 1, 2006. Future tax
expense for the three months ended March 31, 2007 is an expense of
$nil million compared with a recovery of $1 million in the corresponding
period in 2006. The recovery in future tax expense in 2006 was primarily due
to a loss for income tax purposes in the period.

    
    SUMMARY FINANCIAL INFORMATION

    -------------------------------------------------------------------------
    $ million
    except
    per share   2007                2006                        2005
    amounts
    -------------------------------------------------------------------------
                  Q1      Q4      Q3      Q2      Q1      Q4      Q3      Q2
    -------------------------------------------------------------------------
    Interest
     income   $    5  $    4  $    3  $    2  $    1  $    2  $    4  $    4

    Net
     earnings
     (loss)        -     (11)     (1)      4      (2)     (1)     (1)     (-)

    Earnings
     (loss) per
     share,
     basic and
     diluted  $    -  $(0.06) $   (-) $ 0.02  $(0.01) $(0.01) $   (-) $   (-)

    -------------------------------------------------------------------------
    

    Quarterly variations in interest income are primarily the result of the
amount of cash and cash equivalents available for investments during the
applicable period. The amount of cash and cash equivalents is influenced by
the size and nature of financing activities and level of investing activities
during the period. Earnings have also been influenced by increased levels of
G&A and fluctuating tax expense. We recorded a $15 million increase in the
amortization expense related to deferred financing charges during the fourth
quarter of 2006 which increased our loss during the period.

    LIQUIDITY AND CAPITAL RE

SOURCES Liquidity --------- We have not had any revenue from the commercial development of bitumen or PSC(TM) as the commercial operations of the Project are not planned to commence until the fourth quarter of 2007. Project expenditures, future phase expenditures and corporate costs during the period were funded from working capital. During the quarter, cash provided by operating activities was $3 million, cash used in financing activities was $4 million and cash used in investing activities was $208 million. These changes resulted in a reduction in cash and cash equivalents during the period of $209 million. Our long-term debt consists of USD $450-million Term Loan B Facility (TLB), USD $1,000-million of Senior Secured Notes (the Notes) and a CDN $500-million Revolving Credit Facility (the Revolving Facility). During the period the decrease in our long-term debt was due exclusively to a change in the period end foreign currency rate of our USD denominated debt. Based on the Project estimate of $5.0 billion, excluding the contingency reserve of $300 million, our share of this estimate is $2.5 billion. In relation to our share of the estimate, we have incurred $2.13 billion and our share of remaining costs is approximately $0.37 billion. The majority of these expenditures are expected to be incurred in the remainder of 2007. Capital Resources ----------------- At March 31, 2007, our capital resources included total working capital of $266 million and an undrawn CDN $500-million Revolving Facility. Working capital consists of cash and short-term investments of $328 million, the current portion of the interest reserve account of $134 million and a non-cash working capital deficiency of $196 million. In addition, OPTI has $132 million in an interest reserve account not included in working capital. The total amount of the interest reserve account, including the current portion, is expected to cover all interest payments in respect of the Notes and the TLB until December 31, 2008. Our current financial resources include our available working capital, the Revolving Facility and pre-funded interest account. We anticipate that these resources will allow for completion of Phase 1, up-front planning for future phases in 2007 and all 2007 corporate costs. If costs increase above the $5 billion cost estimate and the contingency reserve is required, we will require additional funding. Such additional funding would be planned considering Phase 1 completion as well as our 2008 requirements in respect of future phases. Upon the commencement of commercial operations of Phase 1, which is expected to be in the fourth quarter of 2007, operating cash flow will play an important role in financing a portion of the costs of our multi-stage expansion plans. Cash flow in the latter part of 2007 will be impacted by the final cost of the Project, timing of commencement of operations, the rate of ramp-up of operations during the start-up phase, natural gas costs and oil prices. We currently do not have the capital resources necessary to complete our future phases. Cash flows from operations and additional debt and/or equity financings will be required to fund the engineering and construction of future phases. Our planned future expansions are expected to be financed by a combination of cash flow from the Project and additional debt and/or equity. Certain capital expenditures for these expansions are underway in 2007 prior to commencement of commercial operations of the Project. In addition, our capital expenditures may be greater than our operating cash flow in 2008. The amount of debt and equity required will be impacted by factors noted. There can be no assurance that we will be able to complete these future financings with terms acceptable to us. We have $202 million of call obligations. The option for exercise belongs to us, and we do not expect to exercise our right to issue shares in relation to the call obligations. The call obligations consist of unconditional and irrevocable call options whereby the Company, at its option, can require a subscription for either a convertible preferred share or a common share for the face amount of the call obligation. The Company can exercise the call obligations at any time until the earlier of completion of the Long Lake Project and June 30, 2008. The exercise price per share of the call obligations is $2.20 per share and should OPTI exercise its option, it would result in the issuance of 91.8 million additional common shares and gross proceeds of $202 million. CONTRACTUAL OBLIGATIONS AND COMMITMENTS The following table shows our contractual obligations and commitments due during the next five years and thereafter as at March 31, 2007. ------------------------------------------------------------------------- $ millions Less than 1-3 3-5 More than Total 1 year years years 5 years ------------------------------------------------------------------------- Contracts and purchase orders (i) $ 153 $ 153 $ - $ - $ - Long-term debt (ii) 1,672 - 6 10 1,656 Capital leases (iii) 143 11 32 18 82 Operating leases (iii) 19 2 1 2 14 ------------------------------------------------------------------------- Total commitments $ 1,987 $ 166 $ 39 $ 30 $ 1,752 ------------------------------------------------------------------------- (i) Consists of our share of future commitments associated with contracts and purchase orders in connection with the Project and our other oil sands activities. (ii) Consists of USD $450 million outstanding under our TLB and USD $1,000 million under the Notes. The amounts represent only scheduled principal repayments. In addition, we are contractually obligated for interest payments on borrowings under our long-term debt and standby charges in respect of undrawn amounts under the Revolving Facility which are not reflected in the above table. In respect of the Notes, annual interest of USD $82 million is due until 2014. In respect of the TLB, annual interest will be approximately USD $35 million using current interest rates. (iii) Consists of our share of payments under our product transportation agreements with respect to future tolls during the initial contract term. SHARE CAPITAL At March 31, 2007, the Company had 172,838,904 common shares, 3,104,000 common share warrants, and 7,990,538 common share options outstanding. The common share options have a weighted average exercise price of $11.74 per share and each common share warrant entitles the holder to purchase two common shares at a price of $14.75 each. At March 31, 2007, including instruments where the option to exercise resides with the holder, OPTI's fully diluted shares outstanding is 187,037,442. This fully diluted number includes common shares outstanding, common share options, and common share warrants. CONFERENCE CALL We will hold a conference call at 7:00 a.m. MDT (9:00 a.m. EDT) on Thursday, April 26, 2007 to review our year-end results and progress on the Long Lake Project. Sid Dykstra, President and Chief Executive Officer and David Halford, Chief Financial Officer, will host the call. To listen to the conference call, please dial: (403) 410-9170 (Calgary or Alternate International) (866) 540-8136 (North American Toll-Free) (800) 8989-6323 (International Toll-Free) Please reference the OPTI Canada conference call with Sid Dykstra when speaking with the Operator. A replay of the call will be available until May 26, 2007, inclusive. To access the replay, call (416) 695-5800 or (800) 408-3053 and enter passcode 3219584 followed by the pound (No.) sign. ABOUT OPTI OPTI Canada Inc. is a Calgary, Alberta-based company focused on developing the fourth and next major integrated oil sands project in Canada, the Long Lake Project, in a 50/50 joint venture with Nexen Inc. The first phase of the Project consists of 72,000 barrels per day of SAGD (steam assisted gravity drainage) oil production integrated with an OPTI-operated upgrading facility, using OPTI's proprietary OrCrude(TM) process and commercially available hydrocracking and gasification. Through gasification, this configuration substantially reduces the exposure to and the need to purchase natural gas. 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. OPTI's common shares trade on the Toronto Stock Exchange under the symbol OPC. Additional information regarding the Long Lake Project is available at http://www.longlake.ca. FORWARD LOOKING STATEMENTS Certain statements contained herein are forward-looking statements, including statements relating to: OPTI's operations; anticipated financial performance; business prospects, expansion plans and strategies; OPTI's plans and expectations concerning the use and performance of the OrCrude(TM) process and other related technologies; the cost, development and operation of the Long Lake Project and OPTI's relationship with Nexen Inc. Forward-looking information typically contains statements with words such as "anticipate," "estimate," "expect," "potential," "could" 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, we have made assumptions regarding, among other things: market costs and other variables affecting operating costs of the Project; the ability of the Long Lake 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; the degree of risk that governmental approvals may be delayed or withheld; other risks and uncertainties described elsewhere in this document or in OPTI's other filings with Canadian securities authorities. Readers should be aware that the list of factors, risks and uncertainties set forth above are not exhaustive. Readers should refer to OPTI's current Annual Information Form, which is available at www.sedar.com, for a detailed discussion of these factors, risks and uncertainties. The forward-looking statements or information contained in this news release 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.

For further information:

For further information: Alison Trollope, Investor Relations Manager,
(403) 218-4705; OPTI Canada Inc., Suite 2100, 555 - 4th Avenue SW, Calgary,
Alberta, Canada T2P 3E7

Organization Profile

OPTI CANADA INC.

More on this organization


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890