Chinese buyers still on the hunt for Canadian energy

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Remember the fear about China taking over all of Canada's energy companies? It was just half a decade ago, but it seems like a quaint misunderstanding of a long-gone era.

China's still a buyer, though, as one deal showed this week. The difference is transactions are on a smaller scale and at a slower pace.

Its major state oil companies spent the early part of this century bringing armfuls of cash across the Pacific to spend on Canadian oil assets.

Mega-deals and joint ventures were commonplace, from PetroChina's $1.9-billion purchase of a stake in Athabasca Oil to Sinopec's $4.7-billion (U.S.) acquisition of ConocoPhillips's interest in Syncrude Canada.

The idea at the time was China would pay any price to secure oil reserves, with the expectation that the country's economic growth would keep ballooning each year at double-digit rates.

The topper was CNOOC's $15.1-billion takeover of Nexen in 2012, which sent the federal government into anxiety fits and prompted the Harper Conservatives to formulate new rules to stop the foreign absorption of the oil sands – after they wooed the investments in the first place.

Since then, China's had a rough run in energy, from operational mishaps, such as a spill and a deadly explosion at Nexen's Long Lake oil sands project, to corruption probes at home that forced executives out of their jobs and, finally, to the painful collapse of crude prices.

It's all sent the biggest state-controlled companies into retrenchment. Making money in the oil sands was tough even with oil at $100 a barrel, owing to the many financial and technical things that can go wrong. At less than $40 a barrel, it's much more of a struggle.

But don't look now; deals are being done. In fact, Chinese firms have been buying right through the downturn. A big difference between this era and the previous one is the buyers are not household names. Shanghai-listed Geo-Jade Petroleum's $575-million (Canadian) friendly takeover of Bankers Petroleum, announced last weekend, is a prime example.

The $2.20-a-share cash bid represents a premium of nearly 100 per cent from Bankers' closing price on Friday, although the stock is well down from a year ago.

Okay, Bankers operates in Albania rather than Alberta but it's a Calgary-based deal for Geo-Jade, which has not made a lot of noise here despite a market capitalization of $3.6-billion and operations in Asia and North America.

Sinoenergy Pacific of Beijing has made two Canadian acquisitions in less than a year. It paid $170-million for privately held New Star Energy last summer and, this year, closed a $100-million takeover of debt-burdened Long Run Exploration.

Other recent buyers include China Oil and Gas Group and Yanchang Petroleum International.

That's a decent volume of business following Ottawa's tightened foreign investment rules. Those were aimed ostensibly at blocking foreign state-owned enterprises from buying up control of the oil sands, but the policy created uncertainty among a range of potential buyers with designs on other energy operations.

The most recent acquisitions have been very deliberate. The Geo-Jade deal will not likely run afoul of Canadian investment rules due to the foreign assets and the pledge to maintain the corporate and technical headquarters in Calgary. The others have price tags that fall below Investment Canada's threshold for the most stringent reviews.

None of the deals involve the oil sands. Instead, these are purchases of conventional oil and gas operations.

China's economy has slowed, but it hasn't stopped. Early this month, Chinese Premier Li Keqiang delivered his annual work report, estimating the country's gross domestic product will to grow 6.5 per cent to 7 per cent this year. Foreign investment is expected to increase 10 per cent to $130-billion (U.S.).

Not all of that is energy related, of course, but if the energy industry is in the early stages of a recovery, that can only spell more interest in buying some of the many Canadian assets on the auction block.