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Athabasca closes sale of Alberta stake to PetroChina for $1.184-billion

An aerial photograph taken above the Athabasca Oil Sands near Fort McMurray, Alberta, Canada, on Wednesday, June 19, 2014.

BEN NELMS/BLOOMBERG

PetroChina Co. Ltd. has agreed to pay Athabasca Oil Corp. $1.184-billion for its stake in the Dover oil sands project in northern Alberta, ending more than four tumultuous months during which the deal got caught up in uncertainty surrounding a political scandal in China.

The proceeds for Athabasca's 40-per-cent interest in the project came with a wrinkle., however

PetroChina is making the payments in four instalments over two years, with nearly half the total in the form of promissory notes. Athabasca gets $600-million in cash immediately.

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The company insists the payment plan will not hinder its financial capability as it moves into its next chapter of developing the liquids-rich Duvernay shale gas formation and another oil sands project called Hangingstone. The notes are secured by HSBC Canada and pay higher interest than the company's bank accounts.

Athabasca's route to the proceeds could hardly have been more complicated, and showed how a mid-size Canadian company can get swept up in events outside of its control and well beyond its home base. It started about a year and a half ago, when the Fort McKay First Nation disputed the Dover project's proximity to its traditional lands. That led to a public hearing, an eventual deal, then a delayed government approval. The green light triggered PetroChina's exercise of an option in April to buy Athabasca's stake.

However, the shares came under severe pressure as the proceeds were held up amid a broad corruption purge in China that had ensnared some executives tied to the state-owned company's Canadian operations. There is no indication of any misdeeds regarding the Dover transaction.

"This deal has been so complicated. I think we have gone through all of the possible problems you can think of," Sveinung Svarte, Athabasca's chief executive, said in an interview.

The issues "all played an important part in delaying it. I never really saw that coming, but, anyway, that happens in deals like this. So it does indeed feel good that we have now reached this milestone."

He had previously expressed frustration with frequent questions from analysts, investors and reporters about when the money would arrive. Some investors feared that the deal could unravel as PetroChina re-examined it.

Athabasca shares rose 4.4 per cent on the Toronto Stock Exchange on Friday after the company disclosed the payment arrangement.

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"This resolves an awful lot of the question marks around how they are going to capitalize some of the projects and drilling programs," said Brook Papau, analyst with ITG Investment Research. "This was obviously the biggest overhang on the story, and now you have a resolution of that."

Athabasca has earmarked proceeds to fund other developments, and the beefier balance sheet is expected to aid in efforts to attract a partner for its extensive lands in the Kaybob area of the Duvernay.

The region is estimated to have huge reserves of liquids-rich natural gas, but it still requires much tricky and expensive drilling to confirm the resources. Some of the world's deep-pocketed oil majors, including Chevron Corp. and Royal Dutch Shell PLC, as well as Encana Corp. are also plying acreage there.

The three promissory notes total $584-million and mature in March, 2015, August, 2015, and August, 2016. Mr. Svarte said the separated payments would not restrict its capital spending.

"It's not really a problem for us at all when it comes to spending on top of that," he said. "We consider this a no-risk financial instrument." He will talk to investors about the company's plans next week, and suggests that he intends to remain running the company following the months of complications.

"We want to build it together as a team here. It is a good thing – when you go through tough times, you build a closer relationship as a team than ever, so I think that's the idea," Mr. Svarte said.

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