M&A

4 November, 2009

UPDATE 1-Opti says takeover bid didn't spur strategic review

* Says oil sands project on track to reliable production

* Says high debt partly responsible for strategic review (Adds analyst's comment, updates share price)

CALGARY, Alberta, Nov 4 (Reuters) - Opti Canada Inc (OPC.TO), known for its stake in a major Alberta oil sands project, may put itself up for sale because the project is on track to start producing more reliably, not in response to any takeover bid, its chief executive said on Wednesday.

Opti's shares have been under pressure as output from the project, called Long Lake, has risen slower than expected. The company's high debt level was also a factor in its decision to hire financial advisers to help it examine strategic options, executives said.

"The process was not initiated in response to any specific inquiry or offer," CEO Christopher Slubicki said in a conference call. "Opti has had discussions and will continue to have discussions with parties over time."

Opti shares were up 23 Canadian cents, or 12 percent, at C$2.13 on the Toronto Stock Exchange on volume of 3.3 million shares.

The stock had fallen 42 percent over the past year as Opti and its partner, Nexen Inc (NXY.TO), struggled to raise output from Long Lake, saying last month that the project was unlikely to reach its 60,000 barrel per day capacity until at least 2011.

Nexen and Opti completed a major maintenance turnaround at the C$6.1 billion ($5.75 billion) steam-driven project in September, and that was a driver behind the decision, announced on Tuesday, to weigh options for boosting value, Slubicki said.

The work included replacing hundreds of valves at the production facility and testing numerous parts of the upgrader, which turns the heavy crude from the oil sands into refinery-ready synthetic oil.

"All of these operational milestones have led us to conclude that this is a good time," he said. "We've spoken previously about the potential for a transaction at some time in our future. Oil sands transactions are frequently and typically quite complicated and can take some time to consummate, as illustrated by the processes undertaken by some of our peers."

Opti, which as a 35 percent stake in Long Lake, is examining strategic alternatives just days after fellow small oil sands developer UTS Energy Corp (UTS.TO) sold C$250 million worth of leases to Imperial Oil Ltd (IMO.TO) and Exxon Mobil Corp (XOM.N), and after Asian state oil companies have bought up a host of Canadian energy assets.

Asian companies have been speculated as being among possible buyers of Opti.

The odds favor the sale of some of Opti's undeveloped oil sands assets rather than a full-blown takeover, UBS Securities analyst Andrew Potter said in a research note.

Such a move would help the company fund future phases at Long Lake and solve shorter-term liquidity problems as oil prices increase, he wrote.

The company has said the improving economy and rising prices for oil sands assets favor Opti remaining independent, but its board wants to decide the best way to boost the price of its shares.

($1=$1.06 Canadian) (Reporting by Jeffrey Jones; editing by Peter Galloway)

Source: http://www.reuters.com