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Chinese arrest raises worry over Athabasca's Dover deal

Tar Island facility located at the Athabaska Oil Sands north of Fort McMurray, Alta.

Kevin Van Paassen/The Globe and Mail

A report that a PetroChina Co. Ltd. executive key to the company's Canadian operations has been arrested in China is again raising questions about Athabasca Oil Corp.'s ability to sell its interest in the Dover oil sands project to the state-owned oil giant.

Chinese financial news website Caixin reported that Zhiming Li, the former chief executive of Brion Energy – a joint venture between Athabasca and the Canadian subsidiary of PetroChina – has been taken in for questioning. Brion Energy operates the Dover project.

Mr. Li was called back to China at the end of June and arrested at the airport, according to a roughly translated version of the news story. The report follows news from Reuters in May that PetroChina's overseas operations chief is under official investigation after being removed from his post as part of China's wider corruption crackdown.

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Athabasca shares sank 5.5 per cent in Toronto Stock Exchange trading Wednesday.

The report of Mr. Li's arrest – which also included news of the arrest of a China National Petroleum Corp. official – created "speculation around whether or not [Athabasca] will receive the $1.23-billion (U.S.) Dover put proceeds," Canaccord Genuity Inc. analyst Phil Skolnick said in a note.

However, citing a number of other factors – including the arrival of Shudong Chen, the incoming Canadian director for China National Petroleum, PetroChina's parent company – Mr. Skolnick said he still believes the put money will still be delivered.

It's not clear why Mr. Li was arrested and whether it has any connection to the anti-corruption campaign in the Chinese state sector.

Brion Energy spokeswoman Kristi Baron said she couldn't comment on reports of the arrest, but confirmed Mr. Li is no longer with the company and it will soon have a new chief executive in place.

Matt Taylor, a spokesman for Athabasca, said there will soon be an update on the put call. "Both parties are working diligently to close this transaction," he said. "We expect to close this in the near term."

Mr. Taylor said he could not comment on the arrest, or investigations having to do with PetroChina or former employees of Brion Energy. He acknowledged the Chinese report is having an effect on Athabasca's stock price, but noted it's difficult to know what's going on based on the translation of the Caixin article.

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A source close to the deal said Mr. Chen is also designated to take up the position of chief executive at Brion Energy, subject to the required work permits being issued.

Athabasca has been long been looking to close its deal to sell its stake of the Brion Energy-managed Dover oil sands project. In 2010, PetroChina bought 60 per cent of the Dover project in a deal that included a put/call option, allowing either side to trigger the sale of the remaining 40 per cent after regulatory approvals – to give PetroChina full control of the project.

Athabasca investors have anticipated proceeds from the Dover sale will be used to finance other company operations. The sale was delayed in 2013 when the Alberta Court of Appeal granted the Fort McKay First Nation leave to appeal the Alberta energy regulator's approval of Dover. But a compromise between the First Nation and Brion Energy was reached in February. In April, Athabasca exercised the put option.

Athabasca stock has slumped in recent months as the company awaited payment.

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