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China stages retreat from Canada Three strategic moves by China’s sovereign wealth fund have turned sour, forcing Chinese government to rethink exposure in Canada GARY PARK For Petroleum News
A C$1.9 billion investment stake in the Alberta oil sands sector is not enough for China’s huge sovereign wealth fund to continue operating an administrative office in Canada - the clearest signal yet that Beijing sees little hope of further expansion in Canada’s battered resource industry.
Three strategic moves by China Investment Corp. since 2010 have all turned sour, forcing the Chinese government to rethink its exposure to Canada - which also includes a C$1.7 billion interest to become a major shareholder in diversified miner Teck Resources - said Wenran Jiang, of the Asia Pacific Foundation of Canada.
The oil sands holdings consist of:
•C$500 million in the initial public offering of Athabasca Oil Corp., now considered of the most overpriced IPOs in Canadian history.
•C$1.25 billion in two deals with Penn West Petroleum, which has been hit by an accounting scandal and other problems stemming from the plunge in global oil prices.
•US$150 million in Sunshine Oil Sands, a junior company that only three years ago was talking about producing 300,000 barrels per day from three thermal-recovery projects, but has stopped development of its lead-off West Ells project because it ran out of money.
•C$100 million in oil sands producer MEG Energy before that company went public.
Major share Because other partners have jumped ship as losses piled up, CIC has been left holding either the largest or a major financial responsibility.
In addition, Chinese investment in Canadian energy and mining firms has rapidly tailed off after state-run CNOOC completed its takeover of Nexen Energy in 2012 for US$15 billion - a deal that promoted then-Prime Minister Stephen Harper to block any further takeovers of oil sands companies by state-owned foreign entities.
Jiang told the Globe and Mail that the decline “definitely has had everything to do with the performance of CIC and its official position in Canada. It’s a very different scene today (than from three years ago).”
CIC said in a statement that it “highly appreciates the kind support and assistances provide by Canadian government agencies, local institutions and other stakeholders to (our) Toronto office during its more-than-five-year operation.”
“CIC applauds the open and fair investment policy and business environment of Canada and will continue to explore relevant business opportunities in Canada.”
No administrative presence Despite these positive comments, there now seems little likelihood that CIC, without an administrative presence in Canada, has any plans to resume building on what was a mere fraction of CIC’s investments.
CIC was established in 2007 to help Beijing earn a higher return on its pool of foreign exchange reserves, valued at US$3.44 trillion, including US$747 billion that is managed by CIC.
Canadian oil and gas industry sources note that other ventures by state-owned Chinese companies in Canada are either in hibernation or in retreat.
Brion Energy, a Canadian unit of PetroChina, is expected to complete the first stage of its MacKay River in-situ project by mid-2016 - 18 months behind schedule - at a cost of C$2.2 billion, up C$1 billion from the original budget.
Although nothing official has been said, there is speculation that the next phase of MacKay River and the start of construction on the Dover project have been stalled.
CNOOC and Sinopec have established a significant presence in Canada’s oil and gas sector, but their plans have been kept under wraps.
The only positive shift in investment has come from private Chinese capital, which has entered Canada through unnamed investors by acquiring the distressed assets of junior companies.
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