Barriers block new oilsands investment
Getting rid of barriers will be required to bring back needed foreign investment
Another day, another foreign energy company flees the Canadian oilpatch.
What’s an energy superpower to do?
Here’s one idea for Ottawa to ponder: remove barriers to international investment.
On Friday, British energy giant Centrica PLC announced the sale of its Canadian oil and natural gas production business to a consortium, Maple Felix Energy Corp., for $722 million.
The properties, primarily gas assets purchased from Suncor Energy for almost $1 billion four years ago, produce about 55,000 barrels of oil equivalent per day.
“This was part of a bigger global decision by the company,” explained Centrica spokesperson Wendy Tynan.
Centrica is the latest in a string of international players that have left Canada over the past year.
Companies such as Royal Dutch Shell, ConocoPhillips, Marathon Oil and Norway’s Statoil have sold off oilsands properties to Canadian buyers.
Others are rumoured to be looking for buyers.
The Centrica disposition, which does not include oilsands assets but does involve conventional properties in Western Canada, may offer some hints as to the future direction of foreign oilpatch investment.
Maple Felix’s partners include MIE Holdings Corp., a Hong Kong-based energy company that has been investing in Canada and will operate the business; Can-China Global Resource Fund, a Hong Kong-based private equity firm, and Mercuria Energy Group, a Swiss-based commodities trader.
While foreign capital is leaving the country, foreign capital — mainly from China, in this case — is also replacing it.
Data collected by the China Institute at the University of Alberta found new Chinese investment in Canadian energy companies last year reached $2.6 billion in 20 deals.
All of this is playing out against the backdrop of federal Natural Resources Minister Jim Carr musing Thursday about opening up the oilsands to additional Chinese investment, something the previous Conservative government tried to slow down.
“We would welcome more investment from any nation that’s interested in the oilsands,” the minister told reporters from China.
“As you know, we’re interested in looking at these cases one by one. Our minds are open. And we’ve found generally that Chinese investors are no different than investors from anywhere else.
“They look at costs, they look at prices, and they make their investment decisions.”
Carr’s comments could be the first crack for Ottawa to remove restrictions put in place by the Harper government in late 2012 to stop foreign state-owned enterprises from acquiring controlling interests in Canadian oilsands operations.
That step came after a noisy national debate surrounding Chinese state oil company CNOOC Ltd. spending $15.1 billion to acquire Nexen Energy, a deal Ottawa eventually approved. The decision came during the height of the oilsands investment boom and strong crude prices.
Today, domestic investment has been curtailed, crude prices have stumbled below US$46 a barrel and foreign capital has shifted to other regions.
Between 2012 and 2015, merger and acquisition activity in the oilsands declined to just $3 billion after the Nexen transaction, noted Kevin Birn, director of oilsands for IHS Energy.
“Canada basically gave China the cold shoulder after that and it did have an effect,” he said.
However, simply removing limitations on state-owned enterprises won’t magically create a magnet that attracts money into Alberta.
As China’s ambassador to Canada bluntly pointed out in April, state-owned companies in the country that acquired oilsands enterprises are now losing money and not likely interested in investing more — at least not today.
But altering the rules might help attract capital over the medium and longer term.
Loosening the restriction would signal other promising areas of the Canadian oilpatch that need money — such as the Deep Basin or Montney formation — are open for business, both from private companies and state-owned enterprises from China and elsewhere.
“There is a big repositioning going on in Canada right now from parts of the hydrocarbon spectrum that are uneconomic to parts that are economic,” said ARC Energy Research Institute president Peter Tertzakian.
“Lifting the restrictions is unlikely to bring more money into the oilsands. But it may signal we are welcoming you into other parts of the spectrum that are economic.”
The Trudeau government is also busy backing the expansion of the Trans Mountain oil pipeline to the west coast that can access Asian markets, and trying to find new customers — other than the United States — to buy Canadian resources.
“It’s very important to remove that barrier, given we may see less U.S. investment going forward,” added Tertzakian, noting historically more than half of Canada’s energy industry has been funded by foreign investment.
Meanwhile, China and Canada are in the midst of exploratory talks that could lead to a free-trade agreement.
Carr’s comments appear to be laying the groundwork that Canada is prepared to jettison this investment impediment as part of the broader negotiations.
With more private Chinese companies investing in the energy sector, and that country’s oil imports continuing to grow, an appetite will exist for more Canadian deals in the future, predicted Gordon Houlden, director of the U of A’s China Institute.
“They would be in the market, at the right price,” he said.
So as international energy producers head for the exits, the best way for Canada to maximize its energy resource is to open the door as wide as possible, to as many players as possible.
Removing the existing barriers to international investment would be one place to start.
Canada basically gave China the cold shoulder after that and it did have an effect.