Nathan VanderKlippe

Monday, August 31, 2009

Calgary — PetroChina International Investment Company Ltd. will buy a 60 per cent stake in privately-owned oil sands firm Athabasca Oil Sands Corp. in a deal that oil patch insiders see as a key vote of confidence in Alberta's massive bitumen reserves.

The $1.9-billion deal will give PetroChina a large stake in a company whose assets contain about five-billion barrels of bitumen.

“Oil sands projects are very capital-intensive long-term investments and difficult to fully finance in the traditional equity market,” Athabasca chairman Bill Gallacher said in a release. Athabasca “therefore decided to look for joint venture partners, and these strategic joint venture arrangements with PetroChina, one of the world's largest energy companies, can ensure that the MacKay River and Dover projects will be developed in timely manner, which is excellent news for Alberta and the rest of Canada.”

Rumours of the impending deal pushed up shares in several small junior oil sands companies, including UTS Energy Corp. and Connacher Oil and Gas Ltd. , on a belief that major outside investment interests are once again prepared to invest in the oil sands.

“It's great news for the oil sands business. It shows that there are still large, sophisticated, deep-pocketed companies out there prepared to write big cheques,” said one Calgary banker.

Athabasca calls itself the largest leaseholder in the Athabasca region of the oil sands, with 526,000 hectares of net land.

Sveinung Svarte, the president and chief executive of Athabasca, was not immediately available Monday morning. However, in an interview this May, he said the company had spent months searching for joint venture partners.

“That has always been our philosophy to finance our projects,” he said then. “We are talking about quite a few billion dollars [in] long-term [capital requirements], and to have a partner coming in and finance a large part of that has been our model.”

At the time, he said even with low oil prices, large oil sands properties continued to attract “a lot of interest.”

“Even in this market. I would say maybe even more in this market, because I think the buyers have recognized that it's easy to make a deal today,” he said. “Because the sellers are a bit more, what shall I say, they expect a bit less than with the price at $147 oil.”

Chinese interest have taken an increasingly large stake in the oil sands. China National Petroleum Corp. made a $449-million deal for Verenex Energy Inc. in February – although that deal has had troubles proceeding thanks to difficulties in acquiring permission from authorities in Libya, where Verenex has the bulk of its holdings. And late last year, Sinopec paid about $2-billion for another Calgary company, Tanganyika Oil, which has production-sharing agreements in Syria.

The Athabasca deal shows “that major international companies are game to put up big dough for Canadian oil sands projects. So I'm sure people are looking at that and saying another potentially ready-to-go project is obviously Fort Hills,” said another Calgary investment source. “So UTS could be a beneficiary of that.”

UTS holds a 20 per cent stake in the proposed Fort Hills oil sands mine, which is majority owned by Suncor Energy Inc. after its acquisition of Petro-Canada. UTS rebuffed a bid by French energy giant Total S.A. to buy that share earlier this year.

Athabasca made application last year to build two pilot oil sands projects that will use technology known as “steam-assisted gravity drainage” to exploit the crude on its lands. Unlike oil sands mines, SAGD operators use underground injections of high-pressure steam to coax the thick bitumen to the surface.

The company plans to apply for its first commercial project, a 150,000 barrel-per-day development in MacKay River, near the end of this year. It expects to begin production of a first, 35,000 barrel-per-day, phase in 2014.

The company estimates that it can turn a profit on its projects with crude prices at $50 to $60 (U.S.). Corporate documents point to potential future production from the company's lands of 500,000 barrels per day.

The company raised $400-million in secured debt last July, through a financing led by GMP Securities L.P. and Lehman Brothers Canada Inc.

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