Big Canadian tar sands company’s downfall shows that RBS’ tar sands finance is risky and reckless.

OPTI Canada Inc. is in the process of being acquired by Chinese oil and gas exploration and production company CNOOC Ltd. CNOOC will pay US$2.1m[1] for the Alberta-based company focused on developing major oil sands projects in Canada. OPTI Canada has been making at net loss[2] in every one of the company’s financial quarterly results since Q4 2009.

The Royal Bank of Scotland was involved in a financing deal with OPTI Canada in December 2006[3]. The deal was worth approximately CND$71.4m* as part of a CND$500m revolving credit facility – a financial service that works quite like an enormous credit card.

Of the revolving credit facility debt, which in June 2011 sat at US$165m, OPTI Canada say that the company “intends to repay outstanding amounts under this facility on or around successful completion of the Transaction [the acquisition by CNOOC] or the Recapitalization [a restructuring plan if the acquisition falls through].” The revolving credit facility has been downgraded to ‘D’ by Standard & Poors, OPTI’s credit rating agency, as has the entire corporate rating.

OPTI Canada’s successive losses support the position on tar sands finance in PLATFORM’s report Shifting Sands[4] – that the high cost of tar sands oil production mixed with the volatile price of oil makes for very risky investment. Publicly-owned RBS has been involved in financing worth US$7.5bn to companies operating in the tar sands since it was bailed out by the UK taxpayer in 2008.

This reckless investment undermines the public good on both sides of the Atlantic – harming communities and ecosytems in Alberta[5], and taking financial risks that could not pay off with public money[6].

*A syndicate of seven financiers participated in the lending agreement; this figure assumes each financed an equal part of the total deal.

Endnotes:
  1. pay US$2.1m: http://www.thepressreleasewire.com/client/opti_canada/release.jsp?actionFor=1474109&releaseSeq=3&year=2011
  2. net loss: http://www.sedar.com/GetFile.do?lang=EN&docClass=8&issuerNo=00020397&fileName=/csfsprod/data121/filings/01777775/00000001/s%3A%5C728opc_pr.pdf
  3. December 2006: http://www.opticanada.com/investors/news/index.php?date=2006&news_id=1412157697
  4. Shifting Sands: http://www.greenpeace.org.uk/files/pdfs/climate/RisingRisks.pdf
  5. Alberta: https://www.platformlondon.org/carbonweb/documents/ciots.pdf
  6. public money: http://blog.platformlondon.org/content/www.platformlondon.org/carbonweb/documents/royalbankofsustainability.pdf