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Vol. 19, No. 36 Week of September 07, 2014
Providing coverage of Alaska and northern Canada's oil and gas industry

PetroChina closes deal — almost

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State-owned PetroChina has restored - more or less - the Chinese government’s credibility in meeting its commitments on energy deals.

Almost three months behind schedule, the giant company agreed Aug. 29 to deliver C$600 million in cash immediately to secure full ownership of the Dover oil sands project by Athabasca Oil Corp.

But there is still wriggle room left for PetroChina, which said it will pay the balance in four installments - C$300 million in March 2015, C$150 million in August 2015 and C$134 million in August 2016 - over the next two years.

In addition, it has trimmed the final payment to C$1.184 billion from the original C$1.32 billion, meaning nearly half the total is now in the form of irrevocable, standby letters of credit issued by HSBC Bank Canada and pay higher interest than Athabasca’s bank accounts.

FirstEnergy Capital analyst Michael Dunn said in a note the interest payments on the installments will pay about 1.7 percent, working out to about C$10 million in additional payments.

Phil Skolnick, an analyst with Canaccord Genuity, suggested the news could have been more positive had Athabasca received what it was promised in a lump sum.

Athabasca insisted the payment schedule will not interfere with its financial capability as it embarks on the next phase of developing the liquids-rich Duvernay shale gas formation in northern Alberta and another oil sands project called Hangingstone.

“Closing of the Dover transaction is an important milestone for Athabasca and marks the beginning of a new chapter for our company,” said Chief Executive Officer Sveinung Svarte.

“We can now finalize our business strategy which will be focused on profitable production and reserve growth, cash flow growth, cost discipline and balance sheet flexibility.”

The announcement ended what has been shaping up as a stalemate that started in June in closing the buyout of Athabasca’s remaining 40 percent stake in the 250,000 barrels per day Dover project.

Investor confidence had been eroded amid Chinese reports that some PetroChina senior officials with ties to its Canadian subsidiary, Phoenix Energy Holdings, were part of an anti-corruption investigation by the Chinese government.

PetroChina has reported a 4 percent increase in its first half profit to US$11.1 billion and is expected to benefit from China’s most aggressive economic changes in more than a decade as President Xi Jinping presses for state-owned enterprises to take on a larger market role.

The government also hiked natural gas prices by 15 percent in July and announced that prices would rise even more to reflect the cost of importing the fuel by pipeline from Russia and as LNG.

- Gary Park



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