Athabasca Oil Corp. is in talks with at least one other Canadian oil and gas company to expand an oil sands joint venture planned with Kuwait Petroleum Corp.
According to people familiar with the discussions, Calgary-based Connacher Oil and Gas Ltd. is seeking to transfer a large portion of its oil sands properties into a development venture that Kuwait Petroleum has agreed, on a preliminary basis, to finance. It's possible other companies could be invited to roll in additional oil sands assets.
"There are a bunch of properties that will be folded into a larger project for this venture," said one person familiar with the discussions.
Athabasca spokesperson Heather Douglas said the company is in discussions with other companies about a potential role in the venture with Kuwait Petroleum, but declined to comment about Connacher. A spokesperson for Connacher said it doesn't "comment on rumour or speculation." Earlier this year Connacher hired Goldman Sachs to help it with a strategic review to explore "all strategies available" for improving shareholder value.
In response to a Friday report by The Globe and Mail and a subsequent trading halt by the Toronto Stock Exchange, Athabasca confirmed it signed a letter of intent to develop its Hangingstone and Birch oil sands properties in Alberta. The company did not name the financing partner, but Ms. Douglas confirmed it is Kuwait.
Athabasca and Connacher are the latest of a growing number of oil and natural gas companies to enter discussions with foreign investors and acquirers that have deep pockets to finance expensive petroleum projects at a time when commodity prices are volatile. Deal makers are predicting a wave of deals with private and state-owned companies that could test Canada's openness to foreign investment.
Athabasca estimates its Birch properties have the potential to produce 155,000 barrels of oil per day and Hangingstone 80,000 barrels.
Connacher is a much smaller player in the oil sands and has a handful of properties known as Great Divide, Thornbury and Quigly, located south of Hangingstone. Connacher has two projects operating on its Great Divide lease, and the company produced an average of 11,651 barrels of bitumen per day in the second quarter. Connacher plans to increase production at these existing projects, as well as build expansion phases on Great Divide. Quigley and Thornbury are still being explored.
In an interview Thursday, Kuwaiti ambassador to Canada Ali al-Sammak said the planned investment could reach a value of as much as $4-billion. Some financial analysts and industry sources cautioned yesterday that the valuation was very rich for a company whose total stock market value was just short of $5-billion before news of the pending transaction broke yesterday. Mr. al-Sammak could not be reached to elaborate on the valuation.
In heavy trading Friday, Athabasca's stock rose $1.07 to close at $13.58, giving the company a total value of $5.43-billion.
Kuwait is one of a number of foreign state-owned and private buyers that are in discussions to acquire oil and natural gas assets or invest in oil sands projects, according to industry sources. Buyers from China, South Korea, Russia, Southeast Asia and Europe are attracted to Canada because of its vast crude reserves and low valuations.
The federal government has been largely open to foreign investment in the oil patch because many Canadian companies and investors lack the financial clout to pay the estimated tens of billions of dollars it will cost to extract oil from the sticky bitumen of the oil sands.
This openness, however, is being tested by the growing volume of foreign acquisitions, many of them by government-controlled companies.
Last month, state owned CNOOC Ltd. of China unveiled a $15-billion offer for Nexen Inc. and this week shareholders approved a $6-billion bid by Malaysia's Petronas for Progress Energy Resources Corp. Both deals are being reviewed by Investment Canada to assess their benefit to the country.
The deals are prompting discussions at senior federal levels, sources said, about how much offshore presence they should encourage in key resource sectors and whether it needs to assess the independence of state-owned buyers.
With files from Shawn McCarthy in Ottawa