The global race to develop Canada's oil sands has lured another major foreign investor, setting a rich new valuation for Alberta properties.
A subsidiary of Thailand's PTT Exploration and Production Public Company Limited agreed to pay $2.28-billion (U.S.) for a 40-per-cent interest in a northeastern Alberta oil sands property owned by Statoil
The deal marks both a substantial win for the Norwegian company and a resounding new vote of confidence in the oil sands sector, which is staging a strong recovery from the downturn of the past two years. On a per-barrel basis, a key industry measurement, the deal pushes up the benchmark for asset prices in a sector that is rising again thanks to solid crude prices.
Statoil bought 100 per cent of the Kai Kos Dehseh oil sands project for just under $2-billion only three years ago. That means Statoil is recouping its original investment while retaining control of the project, though it has invested significantly in the property.
Thailand now joins a long list of foreign countries that have invested heavily in the Fort McMurray area, including the U.S., the Netherlands, the U.K., China, Japan, South Korea, France and Norway. For them, the massive bitumen deposits around Fort McMurray, which contain an estimated 170 billion barrels of recoverable crude, have proven irresistible in a world where more than three-quarters of all oil is locked in areas that aren't open to outside companies.
"If you look at the world's investable oil, roughly half of it sits in the Canadian sands. So it kind of makes sense that it attracts interest from around the globe," said Chris Seasons, the president of Devon Canada who chairs the Canadian Association of Petroleum Producers. He credits, in part, the spate of recent Chinese oil sands investments with raising the region's global profile.
"I'm sure people are saying where the Chinese go, we go - and also looking at their own economies and saying, 'We've got some pretty good growth prospects over the year, and we need to fuel that,' " he said.
Oil sands assets haven't seen prices this high in years. Valuations, based on a price per barrel of recoverable bitumen, are rising. The median since 2004 is 84 cents (Canadian), according to numbers compiled by National Bank Financial analyst Peter Ogden. Since 2008, the median deal has landed at roughly $1.15.
The PTTEP deal comes in at $1.35 - 15 per cent more than the recent median- assuming a new estimate that suggests Kai Kos Dehseh contains 4.3 billion barrels of bitumen. Statoil has long said its land contains 2.2 billion barrels, although the company is now re-evaluating the figure.
Either way, it's the highest valuation since mid-2008, with the one exception of Sinopec's purchase of a minority interested in Syncrude Canada Ltd., a fully-operating mine.
"We consider this a relatively high price to be paid for essentially a non-producing asset," Mr. Ogden wrote in a research note Tuesday. "It likely reflects a call-option on future oil prices."
Thailand imports two-thirds of its crude and, like much of Asia, has experienced a rapid growth in energy consumption, quadrupling its oil consumption since 1980. It has also, in the past five years, seen its currency, the baht, appreciate by 25 per cent against the U.S. dollar. That in itself has provided substantial incentive to invest abroad - as has a desire to protect assets inside a state-owned firm.
"To some extent PTTET has said, we can buy something, sell it [at home]as an idea of energy security, and get some diversification and keep the money out of the hands of the government," said Roberto Herrera-Lim, director for Asia with Eurasia Group, an international risk consultancy firm.
PTTET's oil production largely comes from offshore platforms. The Statoil deal is its first North American asset purchase, and Mr. Herrera-Lim sees it largely as a financial transaction - although the possibility that a future West Coast pipeline will allow crude shipments to Asia could also have proven attractive.
For Statoil, the deal allows it to take a hefty profit on its oil sands assets, while still improving its reserves thanks to the new bitumen estimate. Oil sands have provided a third of Statoil's reserve base - and the company rejected claims by environmental groups that it was giving in to criticism of its investment in "dirty oil."
"Let me be very clear on this one: this is not because of Greenpeace," Statoil Canada president Lars Christian Bacher said in an interview. "We have from day one as a company said that we will not have a 100-per-cent stake in the oil sands, because we have a tradition of bringing in partners. We view that as adding value."