PetroChina Company Ltd. (NYSE:PTR), the largest integrated oil company in China, gained approval from the Canadian government to acquire a majority stake in two oil sands projects in western Canada for C$1.9 billion ($1.8 billion). The decision is subject to commitments by PetroChina on spending and investment, as well as job creation.
As per the terms of the agreement with Athabasca Oil Sands Corp. (a privately held Calgary-based group) announced in August, the Chinese energy giant will purchase a 60% working interest in the Canadian company’s proposed MacKay River and the Dover ventures in northern Alberta. The deal is currently the largest venture by China in Canadian oil sands.
According to an independent third party evaluation, the oil sands that PetroChina plans to exploit are estimated to contain as many as five billion barrels of reserves, about half of Athabasca’s total recoverable resources. Peak production from the two sites is projected to reach 300,000 – 500,000 barrels per day, with first volumes expected in 2014.
The agreement calls for the Chinese behemoth to provide certain financing arrangements for Athabasca, ensuring timely development of the MacKay River and Dover projects. In general, oil sands projects are characterized by long-term capital-intensive investments that require huge up-front expenditures. The total capital cost to develop the MacKay River and the Dover properties are estimated to be in the range of C$15 – C$20 billion.
PetroChina has committed to contribute more than C$250-million for its share of projects over the next three years, while boosting employment levels. The company will also maintain a regional office in Alberta for five years.
Oil sands, also known as tar sands, are naturally occurring mixtures of bitumen (a sticky, tar-like form of petroleum), water and sand that are found in large deposits in Athabasca, Peace River, and Cold Lake in Canada’s Alberta province. The oil sands in northern Alberta hold the largest crude reserves outside the Middle East.
We see this transaction as part of PetroChina’s long-term strategic plan to explore one of the world's largest untapped oil regions and supplement its conventional reserves.
In recent times, oil sands have drawn growing interest from Chinese energy groups. Sinopec (NYSE:SNP) owns a 10% stake in a planned Total SA (NYSE:TOT) project, while CNOOC Ltd. (NYSE:CEO) bought a 17% interest in a small privately held oil sands project.