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September 2009

Vol. 14, No. 36 Week of September 06, 2009

China in major Canadian oil sands deal

PetroChina puts up C$1.9 billion for 60% stake in two Athabasca Oil Sands Corp. projects, MacKay River and Christina Lake

Gary Park

For Petroleum News

China is back in the Alberta oil sands, in a big way. PetroChina is spending C$1.9 billion for a 60 percent stake in two projects being developed by privately held Athabasca Oil Sands Corp.

If the deal gets foreign investment and national security clearance from the Canadian government and is concluded by Oct. 31, the world’s largest oil company will be committed to fund its share of the MacKay River and Christina Lake projects that are expected to need combined investment of C$15 billion to C$20 billion.

In making the announcement Aug. 31, AOSC successfully completed a rapid-fire search for a joint venture partner that attracted several companies to its data room.

AOSC Chairman Bill Gallacher told a conference call that a strategic alliance was needed because the “very capital-intensive long-term investments” needed to develop the oil sands are “difficult to fully finance in the traditional equity market.”

He said PetroChina’s presence will ensure that the two projects are able to proceed in a “timely manner,” with AOSC retaining its operator role for the time being.

Gallacher said PetroChina was chosen because of its technical and financial strength and because of the “great strides” it has made in developing cost-effective and environmentally friendly technologies for its various heavy oil undertakings in China.

Observers startled

The deal has startled observers because of the current oil sands lull during the economic recession and pending government environmental regulations covering greenhouse gas emissions.

It comes hard on the heels of a visit to China in early August by Canada’s Finance Minister Jim Flaherty who said Canadian foreign investment rules would not stand in the way of Chinese investment in his country’s energy sector.

“China has a need for resources and is looking for investments abroad,” Flaherty said. “We are encouraging Chinese direct foreign investment in Canada so long as there is compliance with the governance concern and other rules that we have with Investment Canada.”

AOSC executives said the Canadian and Alberta governments have been advised of the PetroChina transaction.

Sveinung Svarte, president and chief executive officer of AOSC, said he does not believe any major government obstacles will surface.

AOSC has a net working interest in 1.55 million acres in the Athabasca region of northeastern Alberta, where third-party evaluators have estimated recoverable resources at 10 billion barrels of bitumen.

The PetroChina deals involve 300,000 acres and 5 billion barrels.

Regulatory applications have been filed for two pilot projects and an application is expected to be submitted later this year for the initial 35,000-barrel-per-day phase at MacKay River. No on-stream timetable has been discussed.

China toeholds established

The emergence of PetroChina comes four years after two state-run Chinese companies established toeholds in two oil sands startups and two years after PetroChina’s parent company, CNPC, blasted the Canadian government and oil sands producers for not supporting its efforts to become the anchor tenant in Enbridge’s Northern Gateway pipeline.

At that time, PetroChina and Enbridge had attempted to aggregate 200,000 bpd of oil sands production to fill half the planned shipments of bitumen to Kitimat on the northern British Columbia coast for tanker shipment to unidentified Asian refineries.

CNPC accused the government and producers of blocking progress toward expanded energy trade with China and walked away from its chance to secure a 49 percent equity stake in Northern gateway.

“Canada doesn’t want to open up its own markets to us, so we cannot cooperate,” said CNPC Vice President Yiwu Song.

Enbridge has since revived Northern Gateway, targeting possible markets in Japan and South Korea, and may hold an open season in 2010.

No deals on shipments

But Gallacher and Svarte said AOSC had not reached any deals with PetroChina on pipeline or tanker shipments of crude from their joint projects.

China’s other upstream plans for the oil sands are both stalled, with no indication when they might be restarted.

Sinopec took an initial 40 percent stake in Synenco Energy’s Northern Lights project in 2005 and added another 10 percent this year after France’s Total acquired Synenco.

CNOOC has a 16.69 percent share of privately held MEG Energy’s Christina Lake project.

In an effort to improve the environmental image of the oil sands, AOSC and MEG have joined Petrobank Energy and Resources, Laricina Energy and OSUM Oil Sands in an alliance that is looking for ways to reduce consumption of natural gas and water at plant sites and advance carbon capture and storage technology.






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