CALGARY — The Canadian oilsands saw its largest investment from a Chinese player to date, with PetroChina buying a working interest in two of Athabasca Oil Sands Corp.’s projects for $1.9 billion.
The privately held Calgary firm said Monday that PetroChina plans to take a 60 per cent stake in its MacKay River and Dover oilsands projects.
“Oilsands projects are very capital-intensive long-term investments and difficult to fully finance in the traditional equity market,” stated Athabasca chair Bill Gallacher.
“AOSC therefore decided to look for joint venture partners, and these strategic joint venture arrangements with PetroChina, one of the world’s largest energy companies, can ensure that the MacKay River and Dover projects will be developed in timely manner.”
The deal is slated to close Oct. 31, Gallacher told reporters and investors on a conference call.
The partners plan to extract bitumen from the oil-soaked sand using in-situ methods like steam-assisted gravity drainage, in which steam is pumped into the reservoir, making the oil thin enough to flow to the surface in a pipeline.
Athabasca has filed regulatory applications for approval of two pilot projects, and plans to seek approval for the first 35,000 barrel-per-day commercial phase of MacKay River by the end of this year.
Darren Cunningham, spokesman for Industry Canada Tony Clements, couldn’t say if the deal would be reviewed under Canada’s foreign investment rules.
But he said the legislation specifies a review any time a Canadian company with assets of more than $312 million is purchased.
“(This deal) would meet that,” Cunningham said.
That legislation was amended this spring to include a national security test to allowing foreign purchases of Canadian companies.
Although the amendments contain a 45-day timeline to review the deal, those regulations have not been fully implemented and won’t effect this transaction.
“Obviously there’s some cash-strapped companies in northern Alberta that need outside financing and it’s tough to find it in more traditional areas, so the Chinese with their big wad of cash in their back pocket are coming hunting,” said Geopolitics Central economist Vince Lauerman.
“The Chinese want to diversify their sources of supply for energy security reasons and Canada has huge resources that they would like to gain greater access to.”
PetroChina is not the first Chinese firm to show interest in northern Alberta’s vast oil reserves, which are second only to Saudi Arabia’s in size.
Sinopec Corp. has a 50 per cent stake in the Northern Lights project 100 kilometres northeast of Fort McMurray Alta., with French energy giant Total S.A. holding the rest.
China National Petroleum Company bid on and obtained 11 oilsands leases in 2007, and in 2005 the Chinese Offshore Oil Corporation invested $150 million in Calgary-based Meg Energy.
Athabasca has given Canadian and Alberta regulators the heads up about the deal, and does not foresee any issues from either the Competition Bureau or from Investment Canada.
“At the end of the day, we’re going to follow the proper pathway and channels to make sure this thing moves forward,” Gallacher said.
Such a takeover would be subject to a new provision recently incorporated into the Investment Canada Act, under which the federal government could block a deal from a foreign firm if it was deemed to pose a threat to national security.
But Ottawa will likely wave through the deal, since it has been trying to improve its relations with China lately, said John Stephenson, portfolio manager with First Asset Investment Management in Toronto.
“We’ve, frankly, been in the penalty box for a long time,” he said.
“If we are really witnessing a thaw, I think we’re going to see more of this from China in the future.”
Speculation about the possibility of other deals pushed up shares in a handful of junior oil sands companies, including UTS Energy Corp. which holds a 20 per cent stake in the Fort Hills oilsands project. UTS shares ran ahead 17 cents or 10.49 per cent to $1.79.
In addition to UTS, Oilsands Quest Inc. and Opti Canada Inc. (TSX:OPC) could be other potential takeover targets by a foreign firm, Stephenson added.
Opti Canada shares closed up nine cents at $1.69 on the Toronto Stock Exchange.
Lauerman said it was smart for Canada to sell oilsands bitumen to markets other than the United States, where the “dirty oil” moniker has gained traction and where emissions regulations are expected to become more stringent.
“Given the environmental factor down in the states, it only makes sense to diversify our customers, especially to customers that are somewhat less concerned about the environment in general and greenhouse gas emissions in particular.” he said.