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Highwood Oil Company Ltd. says its deal to buy a 55 per cent stake in a heavy oil project in northern Alberta has been terminated after it failed to win approval from the Chinese partner to take over as operator.

Calgary oil company Obsidian Energy Ltd. (formerly Penn West Energy Trust) had agreed to sell its position in the Peace River Oil Project it operates to junior producer Highwood for $97 million in May.

But the deal required consent from China Investment Corp., a sovereign wealth fund created by the Chinese government in 2007, which bought a 45 per cent non-operating interest in the play in 2010 for $817 million.

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In July, Highwood said the partner had waived its right to buy the stake itself, nor would it employ its option to sell its minority stake at the same time.

However, Highwood said in a two-paragraph statement on Wednesday it had to terminate the deal because its assumption of operatorship of the project hadn’t been completed.

Obsidian said in a separate statement that it will continue to try to dispose of its partnership stake in order to focus on its light oil Cardium assets in central Alberta.

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