Wednesday, November 03, 2010 7:21:11 PM
from CI*C
"As the strategic alternatives process approaches its one-year anniversary, we believe that investors should hopefully see result by the end of the 2010.
Given the increasing interest in oil sands assets over the past 12 months, we
continue to believe that the review process results in a price well above OPC's
current trading range. Based on recent transaction metrics it is not hard to
justify a valuation for OPC in the $4+/share range"
"
Overall, operational results for the quarter came in line with our expectations
but financial results were weaker than expected. OPC reported CFPS (diluted) of
$(0.34) per share versus CIBCe of $(0.19) per share. The majority of our CFPS
variance was primarily due to higher-than-forecast purchased product costs.
We continue to rate OPC Sector Outperformer – Speculative, but have reduced
our price target from $2.00 to $1.70. Our revised price target is in line with our
revised risked NAV. The primary changes to our NAV were an increase to shortterm
capex (to reflect new steam capacity and well pads) and an increase to our
long-term SOR assumption from 3.3x to 3.8x. While it is still possible for Long
Lake to achieve a 3.3x SOR, the slow progress bringing down the SOR makes it
prudent to adopt this higher assumption until proved otherwise.
Overall, we continue to see positive risk/reward in OPTI"
"
Long Lake Reestablishes Positive Momentum
Bitumen production from Long Lake averaged 26,400 Bbl/d during the quarter
(9,200 Bbl/d net to OPC) – in-line with our forecasts. Production momentum
was strong going into the quarter but floundered in August and September due
to a number of setbacks (pipeline outages, lightning strikes, unplanned upgrader
downtime). October production has rebounded with month-to-date production
averaging 30,000 Bbl/d and current production of 31,500 Bbl/d. Nexen (NXYSO)
(operator) has not officially changed its 2010 exit guidance range of
40,000-60,000 Bbl/d but OPC acknowledged on its conference call that a more
realistic target is 35,000-40,000 Bbl/d.
SOR Still High But Trending In Right Direction"
"
Little News Regarding Strategic Alternatives
As was anticipated, OPTI had little to say in regards to its ongoing “strategic
alternative” and while all options are on the table, we think the most favourable
one for shareholders would be a corporate sale. As the strategic alternatives
process approaches its one-year anniversary, we believe that investors should
hopefully see result by the end of the 2010.
Given the increasing interest in oil sands assets over the past 12 months, we
continue to believe that the review process results in a price well above OPC's
current trading range. Based on recent transaction metrics it is not hard to
justify a valuation for OPC in the $4+/share range. OPTI's liquidity position is
$610 million, which provides sufficient capacity to see it through the review
process.
Nearing Field Level Cash Flow Break-even
At the field level, Long Lake burned through approximately $57 million of cash.
At oil prices of US$80/Bbl, we believe the project will achieve field-level cash
flow break-even at approximately 32,500 Bbl/d of bitumen with 70% upgrader
yields (27,000 Bbl/d with yields in the 70% range). We expect this level to be
achieved in the fourth quarter"
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