Opti Canada momentum appears to be reversing

Opti Canada momentum appears to be reversing


Lou Schizas
Friday, May 22, 2009

Hi Lou,

I check on to tour the site daily. As usual it is very interesting and informative. Keep up the great work. I wanted to get your opinion on Opti Canada . Would this be a good time to buy Opti for the long run. They are partners with Nexen and rumoured to possibly be bought out.

Thank-you,

Steve

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Hi Steve,

Opti Canada has been on fire since March 09,2009 when it traded around 61 cents. Opti is a story of a marathon runner hitting the wall at the 24th mile and having to dig deep to finish the race.

Opti has a 35 per cent non operating interest in the Long Lake Oil Sands project which is experiencing a drag in production start up. Nexen is the major partner and operator with a 65 per cent interest. Opti sold a 15 per cent stake in the project to Nexen in December of 2008 for $735 million to raise cash.

Opti has $1.75 billion in long term debt due in 2014 and needs to meet another cash call by September 30, 2009 to satisfy covenents of its $350 million line of credit.

Thats the financial risk. The reward is a 35 per cent interest in a 2.2 billion barrel reserve which when the project is fully operational will yield 20,000 barrels a day of black gold.

There is also operational risk. The problem in the start up has been attributed in water handling but some of the rumours suggest that there are problems with the reservoir. The Long Lake project has taken longer than forecast and also had to carry higher cost.opc

The chart indicates a stock that got a good lift from the market rally and a further push on takeover speculation. The RSI indicates that the stock got overbought and has pulled back. MACD is also signalling a reversal.


If you are going to enter a position you want to confirm support at $3.00 if it doesnt hold there $2.50 offers support. The current chart seems to be forming a double top which is a reversal pattern which after a run from 61 cents it wouldnt come as a big surprise if some investors are going to take some cash off the table.

Happy Capitalism!

Lou Schizas

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