Blogs & Comment

China to the rescue

CNOOC looks like the good guy now, buying Opti out of bankruptcy.

Chris Slubicki, president and CEO of Opti Canada, addresses the company’s annual meeting in Calgary on April 27, 2011. (Photo: Jeff McIntosh/CP)

Back in 2005 the China Offshore Oil Company, or CNOOC, got burned when U.S. lawmakers made noises to block its US$18.5-billion takeover of integrated Unocal Oil Company, eventually bought by Chevron. Since then, it’s been more timid than the two other Chinese state-owned oil companies, Sinopec and China National Petroleum Corp. (parent company of PetroChina) investing in North America. Its only oilsands holding is a piece of junior MEG Energy (now a public company) acquired around the same time as the withdrawn Unocal bid.

But with its $2.1-billion rescue of Opti Canada, which just last week entered creditor protection, it not only reasserts its Canadian presence; it looks like the good guy. While shareholders will receive only the slightest of premiums on their 12-cent share price, the big winners are bondholders, who will recoup a greater share of their loans and not be saddled with stock in an operationally troubled and undercapitalized company. Under the deal second lien debtholders will get $1.18 billion while CNOOC assumes first-lien notes for $825 million. “Backstop parties” will get $37.5 million.

Probably more important to CNOOC than the 35% stake in the problem-plagued Long Lake project that provides all of Opti’s cash flow are the three undeveloped oilsands properties which it can now proceed to develop at a time of its choosing using the best technology available. In the meantime, it will doubtless learn a thing or two from Long Lake’s operator and majority owner, Nexen Inc. Expect this deal to go through. It’s CNPC/PetroChina that has a history of backing out of Canadian resource deals, not CNOOC, and Canadian regulators will see this for what it is: a best-possible end to a messy business.