|
China’s role under cloud Delays in Alberta oil sands project takeover coincide with corruption probe of PetroChina; unease over China’s business practices Gary Park For Petroleum News
PetroChina is putting the credibility of state-owned enterprises in Canada’s petroleum industry to its sternest test.
The largest oil producer in Beijing’s stable of energy companies has been threatened with legal action if it fails to deliver on its commitment to complete a C$1.23 billion buyout of the final 40 percent stake in the Dover oil sands project held by Phoenix Energy Holdings, a unit of Athabasca Oil.
The tangle is fodder for those who have repeatedly warned over the past decade as Chinese companies started acquiring interests in the oil sands that Beijing, regardless of what promises it makes, does not hesitate to sidestep conventional western business practices.
How the deal with Athabasca is resolved will go partway to determining whether the Canadian government was right almost two years ago when it basically placed a barrier in the path of foreign state-owned enterprises wanting to engage in outright takeovers of Alberta oil sands operators.
Compounding the uncertainty, Athabasca set aside C$49 million earlier in August that will reduce the size of PetroChina’s payment.
That amount addresses potential claims relating to future costs of abandoning oil and natural gas wells in the Dover and MacKay River project areas in northwestern Alberta.
The amount and timing of any payment under the settlement is contingent on completion of the Dover transaction has been stretched to September from June.
Corruption probe Over-layering everything is a Chinese government led corruption probe into PetroChina, with reports circulating that four high-ranking company officials involved with the US$5 billion oil sands deal with Athabasca are under investigation, although a spokesman for PetroChina said there is “no sign” that his company will not go through with the Dover takeover.
Complicating matters, an internal review of Dover has showed the geological structure of the project is more complicated than previous estimates indicated, adding to projected development costs, which reports have suggested is prompting PetroChina to try negotiating a lower purchase price.
If Athabasca goes to court, it could sue PetroChina for failure to make the payment and seek liquidation of PetroChina’s assets including a venture with Encana, as well as seeking a ruling from London arbitrators in the event of a dispute over the sales agreement, according to a contract that was filed with Canadian regulators.
While it waits, Athabasca has seen its own shares slide to their lowest level in 14 months.
Chris Cox, an analyst with Raymond James, said Athabasca is in a strong legal position and would be likely to emerge victorious from any court proceedings.
Taking longer than MacKay JV During a second quarter conference call Aug. 6, Athabasca officials ducked questions on why the sales process, which is underpinned by final regulatory approval in April for a 250,000 barrels per day thermal recovery project, has taken so much longer than the earlier joint venture with PetroChina to proceed with the 150,000 bpd MacKay River project.
Athabasca Chief Executive Officer Sveinung Svarte said only that the schedule to reach a deal had been negotiated after April.
“We don’t want to give you specific timelines because I’m basically fed up having my head to a gun for meeting a certain deadline,” he said.
“Both parties are jointly working toward the closing of the transaction and we have a mutually understood path to closing, including targeted timelines,” Svarte said.
But he would not discuss why the transaction is taking longer than originally expected, insisting the corruption probe is “not a concern of Athabasca. We conduct our business at the highest ethical standard and ... we have not been contacted by anybody in this respect.”
Meanwhile, Athabasca needs a cash infusion to proceed with a conventional oil and gas program in the Duvernay formation of western Alberta, but it is fully funding its 100 percent owned 12,000 bpd Hangingstone oil sands project, which is 89 percent completed.
Svarte said an updated corporate strategy and capital plan promised to accompany the second-quarter report will be delayed until the Dover transaction is wrapped up.
| 