CALGARY — A Chinese energy giant is buying ConocoPhillips’ minority stake in the world’s largest oilsands venture for US$4.65 billion, as the Asian country seeks to quench its burgeoning economy’s thirst for resources.
Houston-based ConocoPhillips said Monday it has agreed to sell its nine per cent interest in the Syncrude Canada Ltd. partnership to subsidiaries of Sinopec International Petroleum Exploration and Production Co.
The deal should close in the third quarter, pending approvals by the Chinese and Canadian governments, ConocoPhillips (NYSE:COP) said.
It makes sense that Sinopec would want in on the Syncrude joint-venture, said portfolio manager John Stephenson at First Asset Investment Management.
“The big markets are shifting east, rather than west. The West is in decline, the East is surging higher,” he said.
Some observers had pegged the most likely buyer of ConocoPhillips’ interest to be Canadian Oil Sands Trust (TSX:COS.UN), already the majority partner in Syncrude with a 37 per cent stake.
“But I think everybody would have had to considered the Chinese as being interested parties as well,” said Lanny Pendill, an analyst with the Edward Jones brokerage in St. Louis.
“They’ve made it very clear that they view the Canadian environment very positively from a political stability standpoint. We all know they’re trying to lock up future supply of oil. It’s not surprising.”
Sinopec’s purchase price is substantially higher than the roughly C$4 billion observers had expected Canadian Oil Sands to pay for the stake, based on the trust’s stock market value. The possibility of the company spending that much capital had been weighing on its unit price.
The trust’s units spiked nearly five per cent, or $1.52, to C$32.22 on the Toronto Stock Exchange on Monday.
“I think it’s a positive, particularly from Canadian Oil Sands’ perspective,” said Stephenson.
“It was a lot of capital to spend and you wondered what they would have got out of it. I think the concern was they’d go and overpay for it.”
The reaction from other Syncrude players was more muted. Imperial Oil Ltd. (TSX:IMO) stock fell three cents to $41.69, Nexen Inc. (TSX:NXY) fell two cents to $25.82 and Suncor Energy Inc. (TSX:SU) fell 28 cents to $35.18.
ConocoPhillips shares were up 64 cents at US$55.96 in New York.
ConocoPhillips (NYSE:COP) put its stake in Syncrude on the block in October as part of a plan to trim US$10 billion in assets from its global portfolio by 2011 in order to pay down debt.
“We are pleased that (Sinopec) has recognized the value of this quality asset,” ConocoPhillips chairman and CEO Jim Mulva said in a statement.
“The completion of this transaction demonstrates the strength of the asset base available to meet our asset sales goals.”
Syncrude, an oilsands mining operation north of Fort McMurray, Alta., has a capacity of up to 350,000 barrels of oil per day.
Imperial has a 25 per cent stake, Suncor has a 12 per cent stake, Nexen has a seven per cent stake and Murphy Oil Co. and Mocal Energy each have a five per cent interest.
Sinopec had already grabbed a foothold in the oilsands through its 50 per cent stake in Total E&P Canada’s Northern Lights project.
But Monday’s deal with ConocoPhillips is China’s biggest move in the oilsands so far.
Another state-owned energy firm, PetroChina, said in August it would invest nearly $2 billion for a majority stake in projects controlled by Athabasca Oil Sands Corp. (TSX:ATH).
Athabasca’s shares made their trading debut last week on the Toronto Stock Exchange, following a highly anticipated $1.35-billion initial public offering. Its shares have fallen ever since, plummeting a further 6.3 per cent to $14.71 on the TSX Monday.
Edward Jones’ Pendill said he sees China continuing to invest in the oilsands through joint-venture arrangements like the Syncrude, Northern Lights and Athabasca projects.
“There’s going to be plenty of opportunities to be doing more of that going forward,” he said. “I still don’t think that they would be very successful coming in and buying out a big player, because I think from a political standpoint that’s probably not going to go over very well.”