Firmer oil prices have not had any positive impact on the very high yielding OPTI Canada Inc. bonds maturing Dec 2014. In fact spreads have widened in recent weeks and the bonds continue to trade at distressed prices. At a current price of $38 they represent a 33% yield to maturity for investors and a good bet on the ramp up of the Long Lake oil sands project.

OPTI is a minority partner with Nexen in the Long Lake oil sands project. The first phase of the project is slated to produce roughly 70-thousand barrels of bitumen per day using steam assisted gravity drainage (SAGD)to be converted to 60-thousand barrels per day of synthetic crude. Until recently production has not exceeded 20-thousand barrels per day.

Until the project starts throwing off net cash, it would seem investors will dwell on OPTI's financial issues which have improved since it sold a 15% stake in Long Lake to Nexen for $735-million, retaining a 35% interest in the venture. The deal allows OPTI to fund operations for 2009 and well into 2010. Given the roughly $190-million in cash on hand, the OPTI bonds are well funded assuming the project eventually ramps up to full production.

Fund manager Ben Cheng of Aston Hill financial reconfirmed his original opinion on the OPTI bonds in light of recent rumors that the company may be preparing itself to be sold after it forfeited operating responsibilities in Long Lake to Nexen.

There are obvious risks to investors given that the project has not reached production capacity; however, there is every reason to believe that OPTI will be cash flow positive on this project and investors will get paid on these bonds.