The Long Lake project in Alberta, a joint venture of Opti Canada and Nexen
When OPTI Canada Inc.'s stock plummeted last week, investors immediately wondered whether Nexen Inc. would buy out its Long Lake partner.
Until Thursday, Nexen executives were largely mum on the issue. But they've now broken their silence to coincide with the release of OPTI's latest quarterly numbers. Without saying the exact words, Nexen suggested it has no interest in buying OPTI outright, but is committed to developing Long Lake.
It's just not clear how exactly it will go about doing that, either by increasing its working interest, or bringing on a new partner.
"We have an awful lot to do in our portfolio," said president Marvin Romanow, suggesting the company doesn't want to get bogged down with Long Lake. "We like our working interest at roughly the two-thirds level and we continue to work with OPTI to find a solution to get this project to full capacity," he said.
As for negotiations between Nexen and OPTI, few details were provided. "We're working with them to find a co-operative solution to allow these investments to go ahead," Mr. Romanow said.
But he added that a scenario like this had already been thought of when Nexen first invested. Back in 2001, "we recognized that we were partnering with a startup, and we recognized that they had a lot of financing to do," he said.
Management also provided some additional colour on the problems at Long Lake, attributing the slow production ramp-up to coming across much more underground water than expected. When operations hit areas with high water saturation, Nexen's steam-to-oil ratio jumps sharply, sometimes hitting levels as high as 10 times. To put that in context, MEG's ratio is just 2.3 times, and that company is blowing out production expectations.
In 2011, Mr. Romanow said he expects bitumen production rates and steam oil ratios to be "variable". (Read: hard to predict.)
"There is a risk that Long Lake production for the year will be less than the guidance we provided," he said.
Although the company's stock is down slightly on Thursday, Nexen is nowhere near as troubled as OPTI, because its assets are much more diversified.
Tim Kiladze