OPTI: Good technology, well structured

The financing for OPTI's 50% share in the C$3.4 billion Long Lake oil sands project in northern Alberta, Canada is notable for three reasons. Firstly, it marks the return of start-ups to the syncrude industry; secondly it is based on a new variation of the industry's steam-based technology that lowers the unit cost of extraction, and thirdly a sizeable portion of the debt was sold down and is held outside of Canadian institutions.

Long Lake is a joint venture between OPTI and Nexen that was formed in 2001 to develop a 20,000-hectare bituminous oil sands lease located in Alberta, Canada. This property, Lease 27, is located 40km southeast of Fort McMurray. It has the potential to produce 1.8 billion barrels of bitumen over a 40-year life.

Nexen will be financing its share of the Long Lake work on its balance sheet. OPTI, however, was formed by Israeli construction and energy concern Ormat as an outlet for its OrCrude bitumen upgrading technology. OPTI holds the exclusive Canadian licence for the OrCrude technology.

OPTI benefits from investments by the private equity arms of two major Canadian banks (which have also placed shares and raised debt). It raised C$100 million in placements in 2002 and 2003, and completed a C$701 million private placement in March 2004. Finally, it closed a C$301 million initial public offering in April, and the shares started trading on 15 April.

An C$800 million non-recourse loan rounds out the project's capital requirements, and its lead arrangers and underwriters are Scotia Capital, TD Securities and RBC. The three arranging banks, as placement agents on the share issues, and in some cases investors, are comfortable with the project credit.

The loan is structured as a mini-perm, and denominated in Canadian dollars to match project costs. The loan has a maturity of 2010, and carries a rate of interest of between 5.5% and 6.5% at launch. This puts the floating rate debt margin at roughly 250-350bp over the 3-month bankers acceptance rate.

The MLAs together with the co-arrangers and sub-underwriters RBS and BNP Paribas sold down the debt to a syndicate of ten banks. With WestLB joining at lead manager level, and HSBC, Alberta Treasury Branches, Canadian Western Bank, BTM, National Bank of Canada, Caisse de Depot et Placement du Quebec, Manufacturer's Life Insurance and Union Bank of California joining at sub-underwriting level.

OPTI Canada Inc

Status: Underwritten April 2004

Project size: C$3.4 billion

Location: Alberta, Canada

Description: Debt backing OPTI's share of 72,000 barrels per day syncrude project

Borrower: OPTI

Project sponsors: Opti, Nexen

Debt: C$800 million

Arrangers: TD, RBC, Scotia

Tenor: six years

Pricing: 250-350bp over 3-month BA rate

Market consultant: Purvin & Gertz

Engineer: Stone & Webster

Lawyers to the lenders: Blake Cassels & Graydon

Lawyers to the sponsor: MacLeod Dixon