CNOOC Ltd. (CEO) has signed a deal to buy OPTI Canada Inc. (“OPTI”) for a total consideration of $2.1 billion, marking a step ahead in the expansion of its oil sands business. The agreement, which is subject to regulatory approvals in Canada and China, is scheduled to be completed in the fourth quarter of 2011.
Upon completion of the deal, OPTI will become an indirect wholly owned subsidiary of CNOOC, China’s dominant producer of offshore crude oil and natural gas. The deal covers OPTI assets that include 35% working interest in the Long Lake and three other project areas located in the Athabasca region of northeastern Alberta. Canada-based energy firm Nexen Inc. (NXY) enjoys ownership interest in the Long Lake development with the remaining 65%.
Long Lake project constitutes a steam assisted gravity drainage (“SAGD”) process and an upgrader. On reaching full capacity, the SAGD process is expected to attain through-put rates of approximately 72,000 barrels per day of bitumen. The Long Lake Upgrader is expected to generate approximately 58,500 barrels per day of products, primarily Premium Sweet Crude.
We remain positive on CNOOC’s performance, which reflects its premium assets portfolio, excellent execution strategy, unique position as a pure oil player and potential transactions in the merger and acquisition space. The latest acquisition is likely to prove beneficial for the company’s shareholders as it will optimize value from the Long Lake project and the three other jointly owned oil sands leases.
Last quarter, CNOOC registered a 59.1% year-over-year jump in revenue on the back of volume expansion. Moreover, we believe that the company’s entry in the Lake Albert Rift Basin will prove beneficial as the venture is expected to become one of the largest oil and gas developments onshore Africa in the upcoming years. This will boost CNOOC’s long-term growth profile through intensive exploration and development programs with its partners over the next 3–5 years.
The company believes that it will be able to maintain a 6–10% compound annual production growth rate over the next five years backed by various organic and inorganic measures. Hence, we reiterate our Outperform recommendation over the long term on the stock. CNOOC retains the Zacks #1 Rank (short-term Strong Buy rating).
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