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China raises Canadian stakes Sinopec bids for outright ownership of Duvernay shale gas play producer Daylight Energy, testing Canadian foreign investment rules Gary Park For Petroleum News
The Asian roundup of Western Canadian oil and natural gas assets has entered new territory with a C$2.2 billion bid by a unit of Sinopec, one of China’s stable of energy giants, to take over Canadian natural gas producer Daylight Energy.
After two years of investing about C$20 billion in the Alberta oil sands, either acquiring minority equity stakes or entering joint ventures, Sinopec has moved the deal-making up a notch by seeking outright ownership.
That puts to the test the Canadian government’s professed support for two-way investment and trade so long as foreign buyers can demonstrate a clear economic benefit to Canada.
Under 2007 revisions to the Investment Canada Act, a review is automatic for any transaction valued at more than C$312 million.
The federal Industry Minister Christian Paradis is prevented by confidentiality clauses in the legislation from comment on a specific case, but the Alberta government did not hesitate to endorse the deal as a “continuing sign of confidence in the province as a secure energy supply.”
Sands transactions OK’d To date, major oil sands transactions have sailed through the regulatory process, notably Sinopec’s acquisition for C$4.65 billion of ConocoPhillips’ 9.03 percent stake in the Syncrude Canada consortium and PetroChina’s C$1.9 billion purchase of 60 percent stakes in two oil sands leases, now held by France’s Total.
The only previous takeover to be approved was CNOOC’s purchase earlier this year of OPTI Canada for US$2.1 billion, although the Canadian company held only 35 percent of Nexen’s Long Lake project.
Daylight Chief Executive Officer Anthony Lambert said the transaction will build on a “highly attractive asset portfolio” and accelerate “our development and exploration opportunities.”
Previously an energy trust, Daylight has accumulated 300,000 acres of exploration land, including 130,000 acres in the highly rated Duvernay shale gas play in Deep basin, which straddles the northern Alberta-British Columbia border.
The company’s proven and probable reserves are estimated at 174 million barrels of oil equivalent, including a gas holding of 750 billion cubic feet, with the latest daily production numbers reported at 140 million cubic feet of gas and 13,379 barrels of liquids.
Daylight potential constrained Martin Pelletier, managing director of TriVest Wealth Counsel, said Daylight is among the mid-cap Canadian producers whose unexplored resource potential has been constrained by the overall pace of development.
He said that makes them an ideal target for Asian buyers, given their management experience and technical knowhow.
Pelletier said others in the same category include PetroBakken Energy and Resources, Progress Energy Resources, Birchcliff Energy and NAL Energy.
“There is still a tremendous amount of interest among Asian investors in the oil sands, but now they’re going to the next stage in terms of trying to gain more operational experience,” said Chris Lee, an analyst with Deloitte Canada.
“You’ll see more investments over and above what we’ve seen in the oil sands into all facets of the oil and gas industry.”
Sinopec, CNOOC and Sinochem, which has yet to invest in Canada, have openly declared their interest in making acquisitions outside the oil sands, focusing on shale gas and shale oil assets, like those owned by Daylight, which offer the prospect of quicker returns and fewer environmental challenges.
Company of moderate size Wenran Jiang, research chair at the University of Alberta’s China Institute, said the deal marks a “bolder step forward” for a Chinese company after political backlash in the United States scuttled CNOOC’s 2005 bid for Unocal.
He said there is no reason why the Canadian government should use its foreign investment rules to block outright ownership of a company “of this moderate size,” given that Sinopec would likely take a hands-off approach to Daylight’s day-to-day operations.
While the British Columbia government has set a goal of completing three LNG export projects by 2020, Alberta has flagged its desire to step up business with Asia by naming Gary Mar, a former cabinet minister and envoy to Washington, D.C., as its trade representative to the region.
A spokesman for the Canadian Association of Petroleum Producers said the appointment is “phenomenal” for the oil and gas industry, given the billions of dollars in equity and development spending Asian state-owned companies have pumped into Western Canada’s oil sands and shale gas development.
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