September 07,2009

PetroChina Oil Sands Deal Highlights US Insecurities

By CT Johnson

 

On August 31, state-owned oil behemoth PetroChina announced a deal to acquire a 60% share in the MacKay River and Dover oil sands projects from Athabasca Oil Sands Corp. for C$1.9 billion ($1.7 billion).

  The deal, China's largest investment to date in Alberta's oil sands, encompasses 5 billion barrels of undeveloped bitumen reserves and will require C$15 billion to C$20 billion to develop.

 

The PetroChina investment marks a change in the region's prospects, which have suffered the lost of C$100 billion in canceled projects over the past year.  The PetroChina deal is expected to stimulate new interest in the oil sands, which represent the world's second-largest oil reserves.

 

PetroChina's interest in the oil sands is unsurprising, given China's ongoing resource acquisition binge.  During 2009, Chinese firms have invested more than $12 billion in foreign resource companies.  In May, PetroChina purchased Singapore Petroleum Corporation for $1.02 billion.

 

The oil sands acquisition also demonstrates China's comfort with investing in expensive, hard-to-develop oil projects.  In June, Sinopec purchased Switzerland's Addax Petroleum, which holds important but technically and politically challenging production assets in Africa and Iraq.

 

Chinese firms have invested in a number of other oil sands projects.  Earlier this year, China Investment Corp. purchased a 17.2% stake in Teck Resources for $1.5 billion.  Teck holds a 20% stake in the Fort Hills oil sands project.  In April, Sinopec increased its 40% share in the Northern Lights project to 50%.  In 2005, the China National Overseas Oil Company purchased a 16.7% stake in Meg Energy for $150 million.

 

The US, however, has expressed concern over the deal.

 

"I think that an acquisition like this should raise national security questions both for the government of Canada and for the government of the United States," said Carolyn Bartholomew, chairwoman of the U.S.-China Economic and Security Review Commission.  Ms. Bartholomew warned of China's growing presence in America's "back yard."

 

Ms. Bartholomew's stance is demonstrative of ongoing discomfort among US policymakers with China's growing economic clout.  Where Canada has welcomed Chinese investment, the US has raised concerns at almost every turn.  China's last major effort to acquire a US resource company was the CNOOC bid for Unocal.  That bid was abandoned in the face of political opposition from the US government.

 

Athabasca's Chairman, Bill Gallacher, said he was confident that the Canadian government would approve the acquisition.  "Whatever customary reviews are required, we're going to follow that path and make sure we have all the fulsome disclosure required to make this project move forward," he said.

 

 

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