The Canadian government has approved state-owned PetroChina's $1.8bn bid to enter the Alberta oil sands market. The deal heralds both PetroChina's largest North American investment to date and more specifically China's foray into the Canadian natural resource sector. The farm-in deal reached in August of last year between PetroChina and privately-held Athabasca Oil Sands was seen as a litmus test for the ruling Conservative party's tolerance of Chinese investment in strategic national assets. Now following completion, the likelihood of further deals between Chinese and Canadian energy firms has increased.
Canada's Minister of Industry Tony Clement approved PetroChina's acquisition of a 60% stake in the MacKay River and Dover projects from Athabasca on December 29, stating with caution that the deal was at a net benefit to Canada. The PetroChina oil sands deal tested the guidelines governing foreign direct investment by state-run entities, set by the incumbent Conservative government back in 2007. But with the key determination by the government when it reviews a large foreign takeover being whether the country gains from the investment, the outcome was concluded to be positive and the deal was subsequently inked.
On a broader scale the regulatory approval can be seen a victory for China's expansionist energy companies which have struggled to gain a foothold in the technologically-advanced North American energy market. Mr. Clement said PetroChina's plan to increase employment levels at the projects and to maintain an Alberta head office for their operating companies was a contributing factor.
With their expansionist plans continuing to be met with determined political opposition in the US, Chinese oil companies have turned their attention towards access to the lucrative Canadian energy market. The combination of the current administration's professed commitment to open trade and the slump in Canada's inward foreign direct investment caused by the financial crisis have broken down Canada's resistance to direct Chinese investment. For Ottawa the positives are clear: the strong financial position of PetroChina and its peers will be a welcome boost for Alberta's oil sands projects, which are currently being held back by high development costs.
Under the terms of the agreement with Athabasca, PetroChina will assume a non-operating majority interest in the two oil sands projects in north-eastern Alberta, which Athabasca believes hold 5 billion barrels of recoverable reserves. In addition, PetroChina has agreed to invest $250 million to fund its equity share of the projects' development through to the year 2013.
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