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State firms swarm oil sands Canadian government under pressure to decide where it will draw the line; Kuwait Petroleum enters mix, claiming tentative deal Gary Park For Petroleum News
Pressure on the Canadian government to decide how far it will go in allowing the sale of oil sands assets to state-owned enterprises could be about to intensify, with indications that Kuwait Petroleum is on the verge of a joint-venture deal with Athabasca Oil Corp.
That speculation coincides with the formal start of a government probe into the proposed US$15.1 billion acquisition of Nexen by China’s oil giant CNOOC at the same time Investment Canada is examining the C$6 billion buyout of Progress Energy Resources by Malaysia’s state-owned Petronas.
The CNOOC-Nexen review has an initial deadline of Oct. 12, although the government, with CNOOC’s approval, can extend that by another 30 days.
‘Net economic benefit’ test Facing heat from within his own government, Prime Minister Stephen Harper has recently indicated his administration will broaden the scope of its CNOOC-Nexen decision beyond the “net economic benefit” test.
Industry Minister Christian Paradis, who oversees Investment Canada, said the government is eager to use the transaction as leverage to negotiate better access to foreign markets for Canadian firms, suggesting greater “reciprocity” between Canada and China is a key objective.
Government sources say Harper wants to spur action from China on broader trade and investment issues, but may avoid trying to inject “reciprocity” into its CNOOC-Nexen verdict.
Canada is more likely to seek a stronger capital expenditure plan by CNOOC to underpin the net benefit condition, the sources said.
Growing unease The growing unease among politicians, industry leaders and independent observers over the rapid acceleration of oil sands deals involving companies from China, Japan, South Korea, Taiwan and Malaysia moved up a notch Aug. 31 when Athabasca disclosed it has signed a letter of intent setting the stage for a joint-venture to develop two of its properties in northern Alberta.
But Athabasca will not comment on reports it is on the verge of a deal with Kuwait Petroleum.
The Calgary-based company, while disclosing the letter contemplates a JV involving its Hangingstone and Birch properties, said in a statement that nothing further will be disclosed until a deal has been finalized and received internal and regulatory approvals.
It cautioned that “no assurance can be given that the transaction contemplated by the letter of intent will be completed.”
Kuwait’s ambassador to Canada, Ali al-Sammak was reported in the Globe and Mail as saying a memorandum of understanding was signed by the two companies in early August and a final agreement is expected in October.
He told the newspaper Kuwait Petroleum is trying to expand its operations beyond the Middle East and acquire oil sands extraction technology to apply in its own heavy oil fields and indicated a deal with Athabasca could be in the range of C$4 billion.
Depending on how a deal is structured, a JV would not automatically trigger a foreign investment review by the Canadian government, which currently is examining two takeovers of Canadian-based companies by state-owned enterprises.
Data room opened in February To help finance development of its conventional and unconventional oil sands leases, Athabasca opened a data room in February for potential partners interested in its Birch carbonate lease, which is designed for eventual production of 155,000 barrels per day.
The company said in July it has attracted “several proposals from international companies.”
Jared Dziuba, an analyst with BMOC Capital markets, said rumors circulated earlier this summer that Kuwait Petroleum was hunting for an oil sands investment.
But he and analyst Phil Skolnick with Canaccord Genuity doubt that a partner with Athabasca would make an upfront cash payment of C$4 billion, which Skolnick noted would represent about 80 percent of Athabasca’s market capitalization.
He said a 50 percent JV on the Hangingstone and Birch properties at an industry average of 50 cents to $1 per barrel would result in a deal worth C$980 million to C$1.4 billion.
Athabasca said it expects to submit a regulatory application in the fourth quarter for an initial phase of 12,000 bpd at the Birch property.
Hangingstone is the most advanced of its projects, scheduling initial steam-assisted gravity drainage, SAGD, production of 12,000 bpd by the final quarter of 2014, followed by two phases of 35,000 bpd each in the 2014-18 period.
CEO Sveinung Svarte told analysts in July his company’s long-term plans for the oil sands “need another partnership,” although he insisted Athabasca can afford to be “picky” in choosing a partner.
“Basically you don’t do JVs because you think they’re fun. You do JVs because you need the financing,” he said. “These are (deals) that take time, but it’s important to get them right up front because they can be large value drivers. Some of the partners we look at are people who can bring markets and help us also commit to pipelines in the future.”
Svarte said there is no reason why JV deals should lower the value of oil sands assets.
“When you hear rumors that some deals were done at very low prices, you will see it is often (because they were) sub-size or sub-quality,” he said.
Field testing of two technologies Athabasca has been field testing thermal-assisted gravity drainage, TAGD, technology to extract bitumen from oil sands formations, in addition to the well-established SAGD method.
TAGD uses electric cables to heat the bitumen, enabling heavy crude to flow to the surface.
Athabasca has forecast the cost of a TAGD operation, by not requiring steam generation or water treatment facilities, will be about half that of a SAGD project.
To obtain a cash infusion, Athabasca has sold 100 percent of its MacKay River SAGD development, targeted for eventual output of 150,000 bpd, and 40 percent of its Dover project to a unit of PetroChina for a combined C$2.7 billion.
Meanwhile, sources within the industry say Connacher Oil and Gas is hoping to transfer a portion of its oil sands properties into a development venture that Kuwait Petroleum has reportedly agreed on a preliminary basis to finance.
But Connacher, which hired Goldman Sachs earlier this year to explore “all strategies available” to improve shareholder value, said it does not comment on “rumor or speculation.”
Connacher has properties known as Great Divide, Thornbury and Quigley, south of Hangingstone, and is operating two projects on its Great Divide lease that produced an average 11,651 bpd in the second quarter with plans to raise that output.
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