China's Cnooc Ltd. agreed July 20 to pay $1.21 billion in cash and $825 million in assumed debt for oil sands developer Opti Canada Inc., which filed for bankruptcy a week ago.

Along with other resources-hungry Chinese energy companies, Cnooc has been amassing oil and gas companies and properties around the world. It has been especially keen to expand its portfolio of oil sands and shale gas assets and by some accounts it is paying a premium for Opti.

Tudor, Pickering, Holt & Co. Securities Inc. wrote in a Wednesday note that the implied price of $1.13 per barrel compares to Houston-based Nexen Inc.'s purchase of 15% of Opti's Long Lake project in January 2009 at 80 cents per barrel.

Opti filed for bankruptcy protection in Canada on July 13 after warning it would miss an interest payment on its second-lien debt due to an underperforming oil sands project. It was able to obtain $391 million of new financing and backing from financial partners in a debt-for-equity swap.

Under the terms of the agreement, Cnooc will acquire Opti Canada's $1 billion 8.25% senior secured notes due 2014 and $750 million 7.875% senior secured notes due 2014, for a net cash payment of $1.179 billion; and all existing issued and outstanding common shares of Opti Canada for a cash payment of $34 million. It will also assume Opti Canada's $300 million 9.75% first-lien notes due 2013 and its $525 million 9% first-lien notes due 2012.

Calgary, Alberta-based Opti Canada has been focused on its Long Lake oil sands project, which has a design capacity for 72,000 barrels per day of steam-assisted gravity drainage oil production integrated with an upgrading facility. The Long Lake project, a joint venture with 65% owner Nexen, was completed in 2008 but is operating at 39% capacity with top water issues, Tudor Pickering Holt wrote. Nexen had owned 50% of the project but picked up 15% in 2009 for $613 million when Opti began running into trouble.

Among its recent deals, Cnooc in March purchased a two-thirds interest in Ugandan oil licenses with Total SA from Tullow Oil plc for $2.9 billion; and in October it took a one-third stake in Chesapeake Energy Corp.'s South Texas Shale operation for $1.08 billion.

Cnooc has followed other Chinese oil companies expanding in Canada. In 2009 state-owned China Petrochemical Corp. bought Canada's Addax Petroleum Corp., an operator of oilfields in West Africa and Iraq, for C$9.7 billion. Last year, China Petrochemical bought a 9% stake in Syncrude Canada Ltd., Canada's largest oil sands project, for $4.65 billion.

In a high-profile deal failure, in February PetroChina Co. Ltd. agreed to pay C$5.4 billion ($5.4 billion) for a 50% stake in Encana Corp.'s Cutbank Ridge Shale gas project, representing China's largest acquisition of a foreign natural gas asset. But the deal fell apart in June when negotiations broke down over terms.

Opti's board has voted unanimously in favor of the transaction.

Opti CEO and president Chris Slubicki said in a statement the company believes the transaction is in Opti's best interest. "Cnooc Limited is a technically experienced and well-capitalized company that is equipped to support further development at Long Lake and future expansions in the Canadian oil sands," he said.

Cnooc CEO Yang Hua said the deal strengthens its Canadian presence in the oil sands business. "We believe that upside potential of the assets will facilitate local energy supply and our production growth in the long term," he said.

The deal must be approved by at least 66.66% of the principal amount of second-lien noteholders, of which it already has support agreements from 55%. If the transaction is terminated for reasons other than a superior proposal, the parties agreed to pursue a restructuring plan that was announced July 13. The noteholder meeting is expected in September.

The transaction must clear the Canadian government and regulators and the Alberta courts but is expected to close in the fourth quarter. It doesn't have to be approved by shareholders.

Advising Opti on the transaction and the restructuring were Scotia Waterous Inc.'s David Potter, TD Securities Inc.'s Robert Mason and Scott Davis and Macleod Dixon LLP's R. Craig Hoskins, Howard Gorman, Darren Hueppelsheuser, Dion Legge, Joel Friley, Wayne Fedun, Richard Borden, Harry Ludwig and John Carleton. Lazard's David Kurtz, Timothy Pohl, Douglas Fordyce, Joseph Miller, Sachin Lulla, Robert Lynd, Benjamin Ryugo and Andrew Gautier advised the Canadian company on the restructuring. Canaccord Genuity Corp.'s Barry Goldberg and Bennett Jones LLP's Richard Orzy, Kevin Zych and Jeff Kerbel are assisting the supporting noteholders.

BMO Capital Markets' Dan Barclay, John Armstrong, Timothy Lisevich and Kathleen Olivotto, CIBC World Markets' Brenda Mason, Art Korpach and Michael Stewart and Gowling Lafleur Henderson LLP's David Lefebvre, David Taniguchi, Thomas Cumming and Charlotte Feasby advised Cnooc.