OilVoice - OPTI Canada Year End 2009 Operational Results

OPTI Canada Year End 2009 Operational Results

Wednesday, February 10, 2010

OPTI Canada Inc. has announced the Company's financial and operating results for the year ended December 31, 2009.

"Significant operational milestones were achieved at the Long Lake Project in 2009. All Upgrader units have successfully operated, demonstrating that our technology works, and our on stream factor has improved considerably. The gasifier is working as designed, providing a low-cost fuel source that reduces our reliance on natural gas. We have made and sold our premium finished product, PSC(TM), which has received pricing equal to or above other synthetic crude oils. As the Project ramps up to full production, we expect that we will have a substantial operating cost and netback advantage.

"In our SAGD operation, we are encouraged by the improved quantity and reliability of steam generation after the turnaround in the third quarter. Recent steam rates have been the highest since the project commenced operation. With the number of wells on circulation and on SAGD at all-time highs, and several wells recently turned over to production, the focus of operations is now on optimizing reservoir performance and maximizing bitumen production. We continue to expect a significant ramp-up through 2010.

"In the fourth quarter of 2009 we also completed several transactions that strengthened our financial position. We believe that we now have significant liquidity to support Long Lake ramp-up and to complete our previously announced review of strategic alternatives to enhance shareholder value," said Chris Slubicki, President and Chief Executive Officer of OPTI.

Project Status

Operations at the Long Lake Project (the Project) in the fourth quarter of 2009 focused on ramping up the water treatment and steam generation facilities after the completion of a successful turnaround in the previous quarter. With improved water treatment, steam injection rose to an average of approximately 92,000 bbl/d for the months of November and December. Recent steam injection is approximately 105,000 bbl/d. The Project has been generating steam on a consistent basis since late October. We currently have 75 wells receiving steam with 57 wells producing.

With the reservoir in the early stages of warm-up post-turnaround, average bitumen production for the fourth quarter was approximately 13,600 bbl/d with an average of 15,800 bbl/d (5,530 bbl/d net to OPTI) for the months of November and December. Recent bitumen production is approximately 18,000 bbl/d (6,300 bbl/d net to OPTI).

The all-in steam to oil (SOR) is currently approximately 6.0 including steam to wells that are in the steam circulation stage and not yet producing bitumen. The SOR ratio of the producing wells was approximately 5.0 in November and December. This SOR is expected to be higher at the current stage of bitumen ramp-up than the company's long term estimate of 3.0. A number of wells have recently been converted to production status from circulation status which would be expected to result in an initially higher SOR. OPTI expect SOR to decline during 2010 assuming the company are able to maintain our recent reliability in delivering steam to wells.

Upgrader on-stream time has increased significantly, averaging 79% in November and December after a late October start up. Improved reliability allowed the Project to process over 90% of produced and purchased bitumen after the Upgrader start up in the fourth quarter. During the SAGD ramp-up period, we expect to purchase approximately 10,000 bbl/d of externally sourced bitumen.

The solvent deasphalter and thermal cracking units are now in operation, allowing the Upgrader to transition from gasifying vacuum residue to gasifying asphaltenes. As a result, Premium Sweet Crude (PSC(TM)) yields have increased to approximately 70%. Yields are expected to increase to the design rate of 80% as the Project reaches higher bitumen volumes.

Future Phases

In 2010, OPTI will invest approximately $23 million in advancing Phase 2 engineering and detailed execution plans, with $5 million budgeted for development of Phases 3 through 6. OPTI and its joint venture partner, Nexen, have agreed to defer the sanctioning of Phase 2 to late 2011 in order to gain additional Phase 1 operating experience prior to construction of future phases, as well as to obtain greater clarity on carbon dioxide regulations.

Strategic Alternatives Review

In November 2009, OPTI announced that its Board of Directors has initiated a process to explore strategic alternatives for enhancing shareholder value. The improving economic environment, recent operational improvements, strengthening merger and acquisition valuations for oil sands assets and the future potential of OPTI's assets support OPTI's current strategy. Strategic alternatives may include capital market opportunities, restructuring the current credit facility, asset divestitures, and/or a corporate sale, merger or other business combination. The ultimate objective of carrying out this review is to determine which alternative(s) might result in superior value for shareholders.

Enhanced Liquidity

On November 20, 2009, OPTI announced the completion of the issuance of US$425 million face value of 9.0% Notes (US$425 million First Lien Notes) due December 15, 2012 at a price of 97.0%, resulting in a yield to maturity of approximately 10.2%. The purpose of the offering was to establish sufficient liquidity through the ramp-up period of the Long Lake Project and flexibility for the Company to proceed with its review of strategic alternatives.

Reserves and Resources

OPTI has a significant presence in the Athabasca oil sands, with a 35 percent interest in over 406 sections of land primarily on three leases: Long Lake (which includes Long Lake Phase 1 and Kinosis), Leismer and Cottonwood. We believe our existing lands will support approximately 360,000 bbl/d of PSC(TM) production (126,000 bbl/d net to OPTI) from six phases including Long Lake Phase 1. Based on reserve and resource estimates, we believe there is potential for three phases at Long Lake, two phases at Leismer and one at Cottonwood. With a limited delineation program in the 2008/2009 winter drilling season, estimates of total reserve and resource volumes for 2009 did not change significantly from 2008.

Reserves
McDaniel & Associates (McDaniel), our independent reserves and resources evaluator, has prepared a report evaluating the bitumen reserves and synthetic oil reserves of the Long Lake leases effective December 31, 2009.

McDaniel categorizes their estimates as proved, probable and possible reserves over various parts of the Long Lake Leases. Proved, probable and possible reserves are booked over the Phase 1 area (noted as "Long Lake"), and probable and possible reserves are booked over the Phase 2 and 3 areas (noted as "Kinosis").

The recognition of reserves in the Kinosis area is largely due to the level of delineation of the leases, the regulatory approval for up to 140,000 bbl/d of bitumen production from Kinosis and the advanced stage of the Phase 2 development. The evaluation of the reserves in the Kinosis area includes only the 72,000 bbl/d Phase 2 development, as Phase 3 will occur subsequent to Phase 2. It is expected that upon Phase 2 receiving formal sanctioning by OPTI and our partner, some of the probable reserves would be categorized as proved; it is also expected that as Phase 3 advances and becomes more certain, that the full 140,000 bbl/d development will be considered in the estimation of reserves.

The McDaniel evaluation of our reserves recognizes the impact of upgrading on the resources. Most of the raw bitumen will be upgraded and sold as PSC(TM) and butane, and is shown as synthetic crude oil or butane reserves. Bitumen was sold prior to Upgrader start-up, is planned to be sold during periods of Upgrader downtime, and is shown as bitumen reserves.

Resources
In addition to the proved, probable and possible reserves, there are contingent resources associated with the Long Lake leases. The reserve estimates limit the life of the project to 50 years, so any recoverable volume that remains beyond this time is categorized as a contingent resource. In addition, some areas of the lease with a lower density of delineation has volumes that are categorized as contingent resources.

There are bitumen resources estimated for both the Leismer and Cottonwood leases, some of which are categorized as contingent resources and some are categorized as prospective resources.