Deal cools worries about foreign investors
Apparently, Canada’s oil and gas sector is indeed “open for business” but “not for sale” to Chinese state-owned enterprises.
Less than a week after Prime Minister Stephen Harper announced restrictions on foreign SOEs seeking ownership of Canadian oilsands producers, Calgary-based Encana Corp. announced a $2.18-billion deal with PetroChina taking a minority stake in a joint venture in its liquids-rich Duvernay natural gas play in west-central Alberta.
Dire predictions of a foreign — especially Asian and, specifically, Chinese — investment chill in Canada’s energy sector by some commentators after Harper’s mixed messages on takeovers were cast in doubt with Encana’s latest deal with the largest of China’s giant state oil companies.
“This couldn’t have played out better for Stephen Harper,” concluded Duane Bratt, a political science professor at Calgary’s Mount Royal University.
In fact, Harper was aware Encana’s joint venture was looming when his government approved the contentious takeovers of Calgary’s Nexen and Progress Energy by state-owned companies from China and Malaysia last week but essentially shut the door on future oilsands takeovers.
After repeated delays, Ottawa approved China’s largest foreign takeover to date with CNOOC’s $15.1-billion acquisition of oilsands producer Nexen along with the $5.3-billion takeover of natural gas producer Progress by Malaysia’s Petronas last Friday.
Encana confirmed it discussed details of its PetroChina joint venture — a non-controlling, minority investment in an earlystage project outside the oilsands — with government officials in Ottawa to ensure it did not contravene the new foreign investment rules.
As a result, the prime minister could confidently state: “When we say Canada is open for business, we do not mean that Canada is for sale to foreign governments.”
Harper knew the new policy wasn’t about to completely scare off investment.
“This is the counterbalance to the argument that Harper had created an investment chill in China and in Asia,” said Gordon Houlden, director of The China Institute at the University of Alberta. “It does nuance the headlines from last week.”
Bratt went further and suggested “if Harper had denied the Nexen deal I don’t think this deal would have gone through.”
This is exactly the type of investment Harper wants from SOEs.
PetroChina paid top dollar for its 49.9-per-cent interest in 180,000 hectares in the Duvernay, which Encana said has about nine billion barrels of oil equivalent in place. Encana is Canada’s largest natural gas producer and it will be the operator in the joint venture.
The symbolism reverberates from Parliament Hill to Bay Street to the oilpatch.
Encana said there were no changes to the joint venture as a result of Ottawa’s new rules.
“This is the first high-profile Duvernay transaction for a large acreage position and has big implications for Duvernay land valuations across the board which lends some credence to claims that the Duvernay could be the next Eagle Ford,” investment firm FirstEnergy Capital said in reference to the prolific shale gas development in Texas.
Energy consultants Wood Mackenzie said in an October report the Duvernay “has the potential to become one of North America’s most attractive liquidsrich plays.
ExxonMobil paid $3.1 billion for Calgary-based Celtic Exploration, which has properties in the Duvernay, in October while major producers like Husky Energy, Chevron, ConocoPhillips and Talisman Energy are also active in the fast-emerging play with light oil and high-value liquidsrich gas.
Encana and PetroChina said they intend to spend $4 billion on development over the next four years in the play. The two companies had begun working on another natural gas joint venture in northeast B.C. in 2010, but they abandoned it a year later after being unable to agree on how the asset would be operated.
While the federal government’s investment restrictions on SOEs taking up dominant positions in the oilsands captured the news headlines Harper made it clear Ottawa “will watch carefully other sectors of the economy to ensure that this situation does not develop in those sectors as well.”
However, even as big Chinese state-owned companies pursue acquisitions in unconventional oil and gas deposits around the world, Houlden offered a simple reason they remain interested in resource-rich Canada despite increasingly restrictive investment rules.
“There is no shortage of risky places in the world for the Chinese to invest,” he said. “Canada is a safe haven.”