China is on the verge of taking complete control over an oil sands asset for the first time. PetroChina International Investment Co. Ltd. (PTR-N130.786.475.20%), China’s largest state-owned energy firm, is set to buy 40 per cent of the MacKay River project from Calgary’s Athabasca Oil Sands Corp. (ATH-T12.810.322.56%), bringing PetroChina’s stake up to 100 per cent. Athabasca announced the sale Tuesday, and the pair formed a formed a joint venture on the MacKay River and Dover projects last year.
The deal does not need Investment Canada approval.
Asian energy companies and investment firms have been taking cautious steps in Canada, buying minority interests in the oil patch in their effort to convince the public and governments they are responsible corporate citizens. Canadian governments have welcomed these outsiders, but Investment Canada, which can block foreign takeovers or investments, does not have the power to rule on the deal because of the way it is structured.
Investment Canada approved PetroChina and Athabasca’s original joint venture agreement, and that review considered what would happen if PetroChina bought more of the MacKay project.
PetroChina first bought 60 per cent of Athabasca’s Dover and MacKay River projects for $1.9-billion. The deal, announced in August, 2009, closed in February, 2010. The agreement had a so-called put/call option, allowing either side to trigger the sale of the remaining 40 per cent following certain regulatory approvals. MacKay River cleared those hurdles at the end of December, with Alberta Energy Resources Conservation Board and Alberta Environment and Water giving the project their blessings.
“When we made the deal with PetroChina, Investment Canada [approved] the entire deal, including the first part – the 60 per cent – and also the put/call part,” Sveinung Svarte, Athabasca’s chief executive officer, said in an interview Tuesday. “So it has been seen by Investment Canada and they have decided hat it is beneficial to Canada, so the deal is a go-ahead from that side.”
Athabasca forced PetroChina to buy the stake, according to Athabasca’s statement. PetroChina will pay $680-million, but Athabasca must repay loans to the Chinese giant. In the end, Athabasca will be up about $200-million, Mr. Svarte.
He called the deal the “perfect divorce” for both parties. However, PetroChina and Athabasca remain partners on the Dover project, and it has the same put/call option. It is expected to receive regulatory approvals in about a year, giving Athabasca and PetroChina the same rights as they had with respect to MacKay River.
Mr. Svarte said Athabasca did not trigger the sale because of any discord between the two parties. Instead, Athabasca’s business has changed, and it has the chance to pursue light oil opportunities. The money will allow it to explore and produce light oil, while still keeping in the oil sands business, he said. On the flip side, PetroChina ends up with a greater stake in the oil sands, which Asian investors covet.
Mr. Svarte expects the deal to close in two or three months. It only needs approval from the competition regulator, he said.
With Athabasca out of the picture, PetroChina will have to operate the project, again a first in the oil sands. PetroChina struck a natural gas joint venture partnership with Encana Corp. last year, although the deal was never consummated. Disagreements over who would eventually operate the project among those the two sides were unable to settle. Encana viciously guards its operator rights, while PetroChina and its Asian kin want to expand their skills.
China made its first foray into the oil sands in 2005, when China National Offshore Oil Corp. invested in MEG Energy Ltd., then a startup. All three of China’s state-owned energy companies have assets in Canada’s oil patch.
While PetroChina’s deal with Athabasca marks the first time a Chinese player has grabbed full control of an oil sands project, Sinopec Corp. at the end of December closed its $2.2-billion to buy all of Daylight Energy Ltd. Korea National Oil Corp. owns all of Harvest Operations Corp.’s equity.
Meanwhile, Sinopec announced a $2.2-billion (U.S.) deal with Devon Energy Corp. Tuesday. Sinopec is set to make a cash payment for a one-third stake in five of Devon’s new venture plays in the United States, followed by paying for some of Devon’s drilling expenses as the projects unfold.
Original Article
Source: Globe
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