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India stirs takeover debate Bid for ConocoPhillips assets triggers call for Canadian government to decide how, where to draw line on oil sands foreign investment Gary Park For Petroleum News
Three state-controlled Indian oil firms confirm they have made a formal bid carrying a price tag some estimate at US$5 billion for Alberta oil sands assets owned by ConocoPhillips.
Although not everyone is ready to accept the reports as a done deal, the talk is seen as further proof that the oil sands are highly coveted by countries pursuing global oil reserves that are not either state-owned or controlled.
BP’s latest statistical review of world energy, highlighted in a research note by AltaCorp Capital, said 84 percent of remaining global reserves are in government hands. Of the freely accessible leftovers, 62 percent were linked to Alberta’s oil sands.
“Given how significant a portion the oil sands make up of currently accessible reserves, it is hard to envision any meaningful growth in global oil output without significant development of the oil sands,” AltaCorp said.
India’s state-owned enterprises seem to accept that argument and may finally be about to end years of rumors by taking the plunge.
Three-company offer Dinesh Kumar Sarraf, chief executive officer of ONGC Videsh, or OVL, the overseas investment arm of Oil and Natural Gas Corp., along with Oil India and Indian Oil Corp. have submitted an offer for assets that were put on the market earlier this year, but would not comment on media speculation that the price tag is US$5 billion.
He said OVL expects to “close the deal soon.” ConocoPhillips refused to comment on “market rumors.”
Phil Skolnick, New York-based oil sands analyst with Canaccord Genuity, said there is nothing to suggest a deal won’t happen.
But he cautioned that India has “gone after assets before and lost out. We’ve been waiting for a number of years, a long time, for India to step up in the oil sands in a big way.”
Skolnick said the US$5 billion figure is excessive, estimating that a half stake in the 24,000 barrels per day at the producing Surmont oil sands property which ConocoPhillips shares with France’s Total, would be worth only C$500 million-C$720 million, based on per flowing barrel average industry values.
However, he said the US$5 billion figure could include the projected costs of development.
Only one lease in production CIBC World Markets analyst Andrew Potter said in a report in September that the US$5 billion price tag attached in June to the ConocoPhillips package, after deducting value for Surmont, might work out to 70 cents per barrel for estimated resource — “much higher than we would have expected for mostly non-operated long-dated resource.”
Scotia Waterous, the financial advisor to ConocoPhillips, describes the properties as a “premier opportunity to acquire a material position” in the oil sands.
Surmont is the only one of the six leases in production. The other five are Thornbury, Clyden, Saleski, Crow Lake and McMillan Lake, with total bitumen resources estimated at 15 billion barrels.
India imports 80% India currently imports almost 80 percent of its oil and has directed state firms to secure more overseas assets to meet rising fuel demand and refining capacity.
Sarraf noted that output from OVL’s current assets may also decline in the current fiscal year due to problems in Sudan and Syria, but commissioning of two blocks on Myanmar could improve volumes in 2013-14. OVL recently acquired a 2.7 percent stake in large oil fields in Azerbaijan.
He conceded India is lagging behind China in entering the oil sands, but said Canada has “huge credible resources” and offers upstream access, which is not available through traditional energy partners in the Persian Gulf.
Sarraf said that even if there are delays in providing pipelines from the oil sands to the British Columbia coast for bitumen exports to Asia, OVL would have “several options for dealing with our share of the bitumen.”
He has previously indicated OVL would upgrade the bitumen in Canada then ship it to Indian refineries, or sell it on global markets and use the proceeds to buy other crudes.
Flood of foreign investment The flood of foreign investment expected in the oil sands is expected to come from China over the next decade, and, providing the Canadian government ratifies the CNOOC takeover of Nexen, it is likely to spread far beyond Beijing.
Also peering over the fence into Alberta are state-owned Kuwait Petroleum, which is pondering a deal with Athabasca Oil Corp.; TAQA North, controlled by the emirate of Abu Dhabi; and Russian giant Rosneft, which purchased a stake this year in the Cardium tight oil play as part of an alliance with ExxonMobil.
In a recent paper, Bob Skinner, a former senior executive with Norway’s Statoil and France’s Total, said national oil companies or NOCs tend to underperform because their owners have different priorities from publicly traded companies.
But he said Canada is not in a position to block NOCs while claiming to be an open economy.
Skinner said the objective should be to “tighten up our oversight and expectations of transparency on the part of all companies working in Canada.”
Urgent need for ‘ground rules’ Murray Edwards, chairman of Canadian Natural Resources — frequently identified as a likely target for an NOC takeover bid — said the urgent need is for the Canadian government to “get some ground rules in place” before the CNOOC-Nexen deal is concluded.
“Some Chinese investment in the oil sands would be in Canada’s interest,” he said. “We want to make sure we have access to capital but, as a country, we want to ensure a strong Canadian presence in the oil sands.”
Steve Williams, chief executive officer of Suncor Energy, the largest oil sands producer, said there is no reason to block the CNOOC deal, but argued the government will eventually have to tackle the bigger issue of where to draw the line on foreign investment in key sectors.
Speaking in Toronto, China’s Commerce Minister Chen Deming insisted China’s state-owned enterprises are “independent business players with a very good record of business.”
He said China is pursuing a policy to open up its own resources, notably in the mining sector, to “experienced foreign investors.”
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