Syncrude operations near Fort McMurray, Alta.MARK RALSTON
China's worldwide search for resource assets returned to Canadian soil with a major investment in a little-known bitumen deposit that is set to bring Chinese expertise in oil extraction to Alberta's energy resources.
In the third major Chinese energy deal in the past year, China Investment Corp. will pay $817-million to take a 45 per cent stake in an oil sands-like project owned by Penn West Energy Trust . The Chinese firm has also agreed to pay $435-million for a 5 per cent interest in Penn West.
Analysts called it a "brilliant transaction" that gives Penn West the financial wherewithal to develop a $1.8-billion bitumen asset that had languished in its portfolio, garnering little value for the company.
But in Calgary, it's another sign that China's ability to extract crude from difficult plays is making Chinese investments more attractive to companies in need of not just money, but skill.
Although Penn West will retain control over the project, it is Chinese-heavy oil expertise that could play a key role in helping expand production from the 96,000 hectares of bitumen resource involved in the deal. That land currently produces just 2,700 barrels a day but could, with the proper treatment, flow up to 50,000 barrels.
"One of the great things that we gain with CIC coming in is just how much they've been doing in mainland China on enhanced oil recovery," said Bill Andrew, chief executive officer of Penn West.
The Penn West deal is just the latest influx of foreign money into the Canadian oil patch, which is increasingly looking abroad to fund major energy developments rather than to more traditional domestic and U.S. sources.
"The companies that have a willingness to invest right now and have the money are in countries like China, Japan, Korea and India. And it just makes sense - if you want to move something ahead, and want to finance it, you've got to go where the money is," said Mr. Andrew.
The Chinese state-owned investment firm, which wields the world's largest capital pool, has already grabbed up stakes in the Canadian mining industry, with a $1.74-billion acquisition of a 17 per cent interest in B-class shares of Teck Resources Ltd. last July. Canada has also attracted the attention of CIC's top executives, with the firm's chairman Lou Jiwei coming to Canada in late April. He dined with Teck CEO Don Lindsay, and met with both Foreign Affairs Minister Lawrence Cannon and Stockwell Day, who serves as president of the Treasury Board and Minister for the Asia-Pacific Gateway.
The Penn West deal marks CIC's first toehold into Canada's oil patch. Penn West's properties lie in the Peace River area, an oil sands deposit different from the Fort McMurray-area sands, which attracted the $1.9-billion PetroChina deal with Athabasca Oil Sands Corp., and the recent $4.65-billion (U.S.) Sinopec purchase of a minority interest in Syncrude Canada Ltd.
The Penn West deal shares many traits with PetroChina's Athabasca investment - which also created a joint venture to develop specific projects, in part using Chinese expertise - and is likely a precursor of more to come, said Athabasca chief executive officer Sveinung Svarte.
"I don't have any doubt that it's the way to go for many companies," he said. "It's a part of the world that's hungry for energy, and they can be very good partners."
Asian investments could bring another benefit, too: Penn West has already begun contemplating how CIC's connections could allow it to secure Chinese-made equipment.
"A lot of our equipment now for the oil and gas business, we buy an awful lot in Canada - but Canada just cannot supply all of the needs. We found that out at the last push on the oil sands," Mr. Andrew said.
Although Canada remains a laggard in wooing Chinese dollars - Venezuela, Brazil, Kazakhstan and Russia have all seen deals worth far more - the influx of Chinese oil patch investments comes as a response to the new Canadian openness to China, said Wenran Jiang, an associate professor at the University of Alberta.
"It's not a coincidence that investments have begun pouring into Canada in both the energy and resource sectors," said Mr. Jiang, who has studied the growth in Asian investments.
Chinese firms have largely kept to joint ventures rather than outright acquisitions, in part because of political sensitivities tweaked by their use of state-owned dollars around the world, and in part because China is engaged in a "delicate dance" to keep a low profile on efforts to convert a massive U.S. currency stockpile into hard assets, Mr. Jiang said.
But in Canada, at least, some of those efforts have paid off handsomely. By the end of last year, for example, CIC's stake in Teck had more than doubled to $3.5-billion (U.S.).
China's rush to resources
China Investment Corp. is a major shareholder of mining company Teck Resources Ltd., and has holdings in gold producer Kinross Gold Corp. and Potash Corp., the investment company revealed earlier this year. The deal with Penn West Energy Trust is the latest in a string of moves by China to invest in the oil sands.
April, 2010: China's state-owned energy firm Sinopec agrees to pay $4.65-billion (U.S.) for a 9 per cent stake in Syncrude Canada, the first major oil sands project in Alberta and one of the industry's top producers.
August, 2009: PetroChina Co. agrees to buy a 60 per cent stake in two oil sands properties held by Athabasca Oil Sands Corp.
April, 2005: China National Offshore Oil Corp. pays $122-million for a 16.7 per cent stake in MEG Energy Corp., a northern Alberta oil sands concern.
Staff
Nathan VanderKlippe