Chinese companies increase stake in oilsands

Chinese companies increase stake in oilsands
China’s national oil company, CNOOC Ltd., begins trading on the Toronto Stock Exchange in September 2013 following its takeover of Nexen Energy.Photo: Nexen Energy.

One week after Athabasca Oil Corp. announced its complete sale of the Dover project to PetroChina, news emerged last Wednesday that China’s national oil company CNOOC would be advancing its takeover of Nexen Inc. by replacing the company’s chief executive.

A news release issued last week announced that former Nexen CEO Kevin Reinhart, who negotiated the company’s sale to CNOOC for $15.1 billion last year, would be “departing” the Calgary-based subsidiary and would be replaced by Fang Zhi, an executive vice-president based in Beijing.

That decision was made by CNOOC, who did not respond to requests for comment.

CNOOC’s president Li Fanrong originally said Nexen’s management and staff would be retained following the buyout in July 2012, which sparked controversy with respect to how much foreign, state-owned interest in Canadian resources should be allowed.

The Conservative federal government introduced a “net benefit” test under the Investment Canada Act in 2012, preventing foreign national companies from buying up major control in the oilsands unless in “exceptional circumstances.”

CNOOC’s purchase was ruled as being of “net benefit” to Canada in December 2012 by the federal government, which indicated the partnership deal would bring capital to the sector.

Reinhart was with Nexen for 20 years, becoming chief financial officer in 2009 and stepping in as interim CEO in January 2012.

The press release stated that Fang would bring “considerable operational and technical depth to the position” based on his 30-year career with CNOOC, which would enabled him to “lead Nexen to collaboratively deliver results for CNOOC Ltd.”

According to the release, Fang has been directly involved in all aspects of CNOOC’s Nexen takeover for the past year.

“Nexen is well positioned to create significant value for CNOOC,” Fang said in the release. “Our portfolio of assets is world-class.”

Nexen has an interest in more than 300,000 acres in the Athabasca oilsands. Its largest interest is in the Long Lake steam-assisted gravity drainage (SAGD) project, which began production in 2008 and holds the potential to produce 72,000 barrels of bitumen per day.

Analysts have linked the change in management to operational disappointments at Long Lake, where CNOOC has a 35 per cent stake. Though the project ended 2013 with a nearly 6,000 barrel-per-day increase in production, at 41,886 barrels per day it continues to sit well below its target despite ongoing investments.

The company is also developing a stand-alone SAGD project in the Kinosis area, south of Long Lake, and holds interests in several other projects in the region, including a 7.23 per cent stake in Syncrude’s oilsands mine, a 12.39 per cent equity interest in Canadian oilsands company MEG Energy, and a 25 per cent working interest in Japan Canada Oil Sands’ Hangingstone project, which is planned to start production in 2016.

Second full buyout by PetroChina

Chinese ownership in the oilsands continues to expand with the recent announcement by Athabasca Oil Corp. that it will be selling its remaining stake in the Dover oilsands project to its partner, PetroChina.

The $1.32-billion sale, conditional on final regulatory approval of the 250,000 barrel-per-day project, will give the state-owned Chinese company its second fully owned oilsands project in the province.

PetroChina secured a 60 per cent interest in both Athabasca’s Dover and MacKay River SAGD thermal oilsands projects in 2010 for $1.9 billion.

That sale – and the option to sell the remaining 40 per cent to PetroChina – came two years before Canada’s decision to change the national investment act.

According to Athabasca president and CEO Sveinung Svarte, the sale was triggered by Alberta Environment’s decision to give final approval to the Dover project last Wednesday.

Cabinet approval and a settlement with the Fort McKay First Nation, which first opposed the project, in March helped seal the deal.

Athabasca’s joint venture operating company in charge of Dover, Brion Energy, will become part of PetroChina when the sale is complete.

Athabasca will received approximately $1.23 billion after $85 million in closing adjustments following the sale to Phoenix Energy Holdings Ltd., PetroChina’s subsidiary in Canada.

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