CNOOC Ltd. (CEO) has received the consent of the Minister of Industry, under the Investment Canada Act, for the proposed acquisition of OPTI Canada Inc. in a deal valued at around $2.1 billion.
The transaction comprises a consideration of $1.2 billion payable to holders of OPTI’s second lien notes, $37.5 million to be paid to backstop parties, $34 million allocated to shareholders and the assumption of $825 million first lien notes. The closure is expected by the end of November 2011.
The government approval for the acquisition by indirect wholly owned subsidiaries of China's CNOOC is based on the expectation that it will prove beneficial for Canada. OPTI holds a 35% working interest in the Long Lake oil-sands project in Alberta, which is its primary asset. Calgary-based Nexen Inc. (NXY) is the operator of this project. The Long Lake project has failed to meet its production goals owing to a string of equipment failures and other glitches. These failures had prompted OPTI to file for bankruptcy in July.
The success of the transaction requires the support of at least two-third of the principal amount of votes cast by the holders of the second lien notes. OPTI has already received approvals from holders of around 55% of the principal amount of these notes, who have settled to vote in favor of the deal.
The termination clauses of the transaction state that in cases other than a superior proposal, the parties to the approval agreements will endorse the company's restructuring plan.
CNOOC is the largest producer of offshore crude oil and natural gas in China. It mainly engages in exploration, development, production and sales of oil and natural gas. The company’s move to acquire OPTI has paved way for Chinese companies to take a direct ownership in Canada-based resources as opposed to the minority stakes it previously held.
CNOOC holds a Zacks #3 Rank, which is equivalent to a Hold rating for a period of one to three months. For the long term, we maintain a Neutral rating on the company.
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