Sale shows big loss in investment value of China-backed Alberta oil project

CALGARY — A Chinese company’s $817-million investment in a northern Alberta heavy oil project nine years ago has collapsed in value to less than $80 million, based on the price its Canadian partner has negotiated for the sale of its majority stake.

The fall to less than one-tenth of original value is shocking but consistent with the general record of poor performance from China’s Alberta oilpatch investments, said Gordon Houlden, director of the China Institute at the University of Alberta in Edmonton.

And it helps explain why China’s spending in the sector has slowed to a trickle since China-based CNOOC bought Calgary’s Nexen Energy for $15.1 billion as spending peaked in 2013.

Mid-sized Calgary oil and gas producer Obsidian Energy Ltd. struck a deal on May 17 to sell its 55 per cent stake in the Peace River Oil Partnership (PROP) to junior producer Highwood Oil Company Ltd. for $97 million.

The other 45 per cent is held by China Investment Corp., a sovereign wealth fund created by the Chinese government in 2007.

CIC made its investment in PROP in June 2010 when Obsidian was a much bigger company called Penn West Energy Trust. Along with its $817 million, CIC bought $435 million worth of Penn West trust units, later converted to shares which Obsidian says appear to have been sold about three years ago.

The drop in value of the project, which includes 96,000 hectares of oilsands leases in northern Alberta, comes despite growth in production from 2,000 to over 8,000 barrels of oil equivalent per day over the past nine years.

Indeed, PROP might be considered a core business if not for the higher profits the company expects to realize from its Cardium light oil drilling program in central Alberta, said Obsidian CEO Mike Faust.

“It’s a great asset. It makes money,” he said. “(But) it needs love and it’s not going to get it from us because we can make a lot more money by playing in the Cardium, full-tilt.”

PROP was worth more in 2010 when benchmark U.S. oil prices were higher and there was less volatility in heavy oil markets, said analyst Cody Kwong of GMP FirstEnergy. He added Obsidian is a motivated seller because of its high debt load and that also might have affected the price.

A simpler answer is that China paid too much for PROP and other Alberta assets as part of its drive to create big international companies and diversify its energy sources beyond the Middle East and Russia, said Houlden.

“They got several things wrong,” he said. “They believed our propaganda that there’s going to be pipelines. And they mis-timed — easy to do — in terms of pricing.”

Amid falling oil prices, a major pipeline leak and a fatal accident, CNOOC shut down the upgrader at Nexen’s centrepiece 50,000-barrel-per-day Long Lake oilsands project in 2016 and has never restarted it, although it continues to produce raw bitumen.

Oilsands Project

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

New highway to B.C. proposed

The Howse Pass shortcut to British Columbia is worth taking another look… Continue reading

Red Deer RCMP execute search warrant

Heavy police presence on Nash Street

Health care coalition calls on government for pharmacare funding in next budget

OTTAWA — A coalition of 150 health care organizations and non-profits is… Continue reading

Telus and affiliates tell customers they’ve already met Liberal rate-cut pledge

OTTAWA — One of Canada’s major mobile service providers appears to have… Continue reading

Five things to watch for in the Canadian business world in the coming week

TORONTO — Five things to watch for in the Canadian business world… Continue reading

Your community calendar

Feb. 6 A Perogie Supper is being held Thursday, Feb. 6 from… Continue reading

Reader’s opinion: Here’s how Premier Kenney can build a stronger Alberta

Apparently, the UPC government has decided that most seniors should pay more… Continue reading

Canadian snowboarder Blouin wins World Cup gold in women’s slopestyle

CALGARY — Laurie Blouin couldn’t wipe the smile off her face after… Continue reading

Alberta skip Laura Walker’s change of heart gets her to first Hearts

MOOSE JAW, Sask. — Laura Walker wasn’t going to curl with a… Continue reading

Catherine Reitman says there’s a ‘real hunger’ for shows like ‘Workin’ Moms’

TORONTO — Some six years ago, when Catherine Reitman was creating her… Continue reading

Museum’s Rembrandt knockoff turns out to be the real thing

ALLENTOWN, Pa. — Thanks to modern technology and some expert detective work,… Continue reading

Woman loses 50 pairs of shoes after boyfriend accidentally donates them to thrift store

Cassandra Converse can’t wait to go shoe shopping. Last month, Converse’s boyfriend… Continue reading

RDC Queens fall in double OT to MacEwan University Griffins

Griffins 4 Queens 3 (2OT) The RDC Queens managed to salvage a… Continue reading

Most Read