Anyone else feel like they are watching one giant creeping takeover in the Alberta oil sands?
Slowly but oh so steadily, state-owned Chinese entities continue to increase their stake in one of the largest reserves of petroleum on the planet.
The latest deal, announced Thursday, will sees Penn West Energy Trust partner up with China Investment Corp. on a joint venture in northern Alberta that's worth $2.6-billion.
Penn West is contributing properties in the Peace River region that it values at $1.8-billion, and will have a 55 per cent stake in the new entity. CIC, the world's largest pool of capital, is contributing $817-million for a 45 per cent interest in the partnership.
To solidify this relationship, CIC is also taking a 5 per cent stake in Penn West, spending $435-million to buy units in the fund at $18.48 each, a thin 2 per cent discount to where the energy trust was trading. Mackie Research Capital was Pen West's financial adviser.
Obviously, CIC will not have control of the new joint venture with Penn West, and will be one of many institutional holders in the energy company. But the overall trend is clear - CIC wants a deeper relationship with a Canadian energy company than peers have taken in the past.
When you look at the history of these deals, what becomes apparent is the increasing scale and ambition of investments by Chinese government-controlled entities.
A few years back, in 2005, CNOOC dropped $122-million for a minority 16.7 per cent stake in privately held MEG Energy.
The scale picked up in the past two years, with PetroChina dropping $1.3-billion for a 60 per cent stake in two undeveloped oil sands properties it now co-owns with Athabasca Oil Sands.
(There was another deal out of Asia last year that featured full control of a Canadian energy company, with state-owned Korean National Oil Co. paying $1.8-billion for Harvest Energy Trust.)
The largest transaction seen to date remains a minority investment - Sinopec paid $4.65-billion earlier this year to acquire ConocoPhillips' 9 per cent stake in Syncrude Canada, the largest oil sands producer.
Add the CIC partnership with Penn West to this list, and it's clear the Chinese government intends to be a major owner of the oil sands. The federal government has consistently taken the view that any source of cash - foreign and otherwise - is welcome in the capital-intensive oil sands.
We don't know what these state-owned entities will snap up next - there are plenty of properties for sale - but it's clear they will be buying.
Andrew Willis