OTTAWA — PetroChina’s proposed $5.4-billion investment in an Encana natural gas project will be reviewed by the federal government to determine if the deal is of net benefit to Canada, Industry Minister Tony Clement said Friday.
The proposed investment by a company controlled by China National Petroleum Corp. is one of the largest by China in the Canadian energy sector and Clement said Friday it will be subject to review. Only two foreign investment deals have been rejected outright under the 1985 Investment Canada Act but both times have been by the Harper government.
Clement stunned investors when he ruled late last year to block a nearly US$40-billion hostile takeover bid by BHP Billiton for PotashCorp (TSX:POT). Ottawa also blocked an attempt by MacDonald, Dettwiler and Associates Ltd. (TSX:MDA) to sell its space division to U.S. defence firm Alliant Techsystems Inc. in 2008.
Under the Investment Canada Act, deals worth more than $312 million are subject to review. Clement will have 45 days to make a ruling once the application for the PetroChina-Encana proposal is filed officially.
“Where a transaction is subject to review, the investor must obtain my approval prior to implementing the investment,” Clement said in a statement.
“I only approve an application where an investment demonstrates it is likely to be of net benefit to Canada.”
Encana (TSX:ECA) has said the deal will allow the assets to be developed more quickly than would otherwise have been the case.
“We would expect to recognize additional value through accelerating our pace of development and by leveraging increased capital and operating efficiencies through further technical advancements and through greater certainty of the long-term development plan for the business assets,” Encana chief executive Randy Eresman said when the deal was announced this week.
PetroChina’s interest in the Cutbank Ridge assets on the Alberta-B.C. border represents production of 255 million cubic feet of natural gas per day, proved reserves of one trillion cubic feet and nearly 257,000 net hectares of land.
Encana will initially operate the joint venture’s assets, but control will shift to a joint management committee once the deal closes.
The deal is not PetroChina’s first venture into Canada. In 2009, the company spent $1.9 billion for a 60 per cent interest in Athabasca Oil Sands Corp.’s (TSX:ATH) MacKay River and Dover projects.
Last year, Encana signed a deal with Korea Gas Corp. for a $565-million investment in two promising natural gas plays in northeastern British Columbia.
Scotia Capital analyst Mark Polak called the PetroChina deal an order of magnitude larger.
“We had expected the deal to perhaps include Horn River assets so the deal is better than anticipated,” Polak wrote in a note to clients.
Enbridge Inc. (TSX:ENB) said last month that Chinese oil company Sinopec was backing its proposed $5.5-billion Northern Gateway pipeline, which has faced stiff fight from First Nations communities and environmentalists.
Sinopec also owns a nine per cent stake in Syncrude Canada Ltd., that it bought for US$4.65-billion, and a 50 per cent stake in the yet-to-be-developed Northern Lights project, planned by France’s Total SA.
China Investment Corp., a state-run sovereign wealth fund, has invested $1.25 billion to help Penn West Energy Trust (TSX:PWT.UN) develop oilsands leases in the Peace River region of Alberta.
Encana shares traded Friday at $30.92, down $1.10 or 3.4 per cent on the Toronto Stock Exchange.