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ConocoPhillips' Surmont operation in the oil sands

Private and state-owned foreign suitors are eyeing the oil-sands properties of ConocoPhillips Co., the latest sign that ownership in the costly northern Alberta industry is shifting to offshore buyers with deeper pockets and a greater tolerance for risk.

According to people familiar with the sale process, Houston-based Conoco began accepting bids in July for up to half of its vast oil sands holding, and has entered into what one person described as a "very vigorous bidding process" with an unidentified group of top bidders. According to a number of media reports, one of the suitors is a consortium of three state-owned oil and gas companies from India: ONGC Videsh Ltd., Indian Oil Corp. and Oil India Ltd. One report from Dow Jones pegged the value of Conoco's oil sands assets at $5-billion.

Conoco is one of the largest property owners in Alberta's oil sands and its planned retreat highlights the growing challenges publicly traded companies face in extracting crude from tarry bitumen deposits with multibillion dollar mining, drilling and refining projects that are plagued with production setbacks and cost overruns.

Investors are increasingly applying pressure on oil companies to trim their investments in oil sands projects.

With oil sands projects more and more expensive to build and operate, even the most entrenched Canadian companies are looking for an exit, or for partners to help carry the load.

Indian state-owned oil companies have been actively scouring Canada for an oil sands asset, showing up at a variety of recent auctions, according to investment bankers who declined to be identified.

But those sources said Indian buyers are often knocked out of the bidding because the slow pace of government decision-making has interfered with their ability to meet bidding deadlines.

Market sources said buyers from China, Europe and Southeast Asia have also expressed interest in Conoco's properties, but it is unclear whether firms from these regions have formally submitted bids.

A Canadian spokeswoman for ConocoPhillips directed calls to her counterpart in Houston.

"We do not comment on market rumours," Davy Kong said.

Athabasca Oil Corp. has made great strides to move away from the oil sands. It is negotiating with Kuwait Petroleum Corp. to sell the state-owned company its Hangingstone and Birch properties. Sources say negotiations also include Connacher Oil and Gas Ltd.'s neighbouring properties.

Athabasca earlier this year sold its remaining slice of the MacKay River project to PetroChina International Investment Co., giving China its first wholly owned oil sands project.

The Asian outfit could soon choose to buy – or be forced to buy by Athabasca – the 40 per cent of the Dover project currently under the Canadian company's control. PetroChina would then own all of Dover.

Meanwhile, other Canadian heavyweights are also looking for partners to help shoulder the cost – and fiscal dangers – of operating in northern Alberta.

Suncor Energy Inc., for example, last year struck a deal with Total SA to reduce the Canadian company's stake in the undeveloped Fort Hills project and its Voyageur upgrader in exchange for $1.75-billion and a 36.75-per-cent stake in an oil sands joint venture with Total and others.

Calgary-based Cenovus Energy Inc. was also hunting for a joint venture partner, but it was unable to find a suitable mate.

Neither Suncor nor Cenovus plan to leave the oil sands, but partnership agreements give them the cash they need to accelerate their oil sands ambitions while lowering their risk. Encana Corp. ditched its oil sands assets when it spun out Cenovus in 2009.

Filling the void left by retreating U.S. companies are offshore state-owned or private enterprises that have a huge need for oil to stoke their emerging economies, and which are not constrained by short-term shareholder pressures.

Smaller companies that once turned to U.S. oil companies to help finance the development of oil sands properties are now looking further afield for investors.

This year, Conoco hired Bay Street investment bank Scotia Waterous to lead the auction of up to 50 per cent of its working interest in a variety of oil sands projects: Surmont, Thornbury, Clyden, Saleski, Crow Lake and McMillan Lake.

The jewel in the package is Surmont. Conoco's joint venture partner in the project is Total SA, which sources say has been looking recently to expand its oil sands holdings. Total spokeswoman Saphina Benimadhu said the French company does not comment on rumours.

Conoco has struck a partnership with one of the most respected oil sands companies, Cenovus, on another key project which is not on the selling block.

The 50-50 partnership includes the Foster Creek and Christina Lake projects, as well as the planned Narrows Lake effort. Conoco's slice of production from this joint venture, before royalties, totals 67,000 barrels of oil per day.

Expansion plans are under way for both Foster Creek and Christina Lake. Cenovus operates the projects.

ConocoPhillips sold its 9-per-cent stake in Syncrude Canada Ltd. to China's Sinopec International Petroleum Exploration and Production Co. for $4.65-billion in 2010.

With files from reporter Boyd Erman in Toronto

Follow Jacquie McNish on Twitter: @jacquiemcnishOpens in a new window
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