Canada looks to Beijing for new oil sands investment
As IOCs flee, Ottawa hopes to lure Asian petrodollars back
International oil companies are retreating from Canada's oil sands. In the past year alone, Shell, Statoil, Total and ConocoPhillips have sold off tens of billions of dollars in major projects to Canadian operators. Just four domestic companies now control more than 70% of the country's oil sands output. That might sound like good news to the oil nationalists, but it raises the threat that the oil sands won't get the investment needed to continue to grow.
In response, natural resources minister Jim Carr took a trip through China last week to promote investment in the oil sands, among other projects, to the country's major energy companies. "We would welcome investment from any nation that's interested in the oil sands," Carr said.
This is a change of tune for the Canadian government on accepting Chinese capital. During the boom years, PetroChina, China National Offshore Oil Corporation (Cnooc) and Sinopec all piled into the oil sands. From 2009 to 2013, those companies did more than $20bn in oil sands deals, highlighted by Cnooc's $15bn takeover of Nexen. However, the rash of dealmaking sparked a backlash in Alberta and Ottawa, where Chinese investments became politically toxic and new regulations were passed that were clearly aimed at slowing the flow of Chinese cash in Canada's oil patch.
Nor have the deals worked out all that well for the Chinese side. Having bought at the peak of the market, and often at inflated prices, Chinese investments in the oil sands are now struggling. Cnooc's Nexen deal has been a drag on the company's finances, and it has come under severe pressure at home, where it has been accused of overpaying for oil sands assets. Sinopec too is struggling. It bought a 9% stake in the Syncrude project in Alberta for $4.65bn, a price tag that raised eyebrows at the time. The most recent Sycrude deal saw Suncor buy a 5% stake from Murphy Oil for $937m. That implies the going rate for Sinopec's stake is currently only around $1.7bn, well under half what it paid.
The rush into the oil sands hasn't worked out for China's energy security aims either. Beijing was clearly eyeing a potential export route from landlocked Alberta to Canada's west coast and on to China. However, the long-proposed pipeline route hasn't yet materialised, though there has been some headway under prime minister Justin Trudeau, who approved Kinder Morgan's Trans Mountain pipeline to the coast. Carr sought to reassure his Chinese associates on this front. "At the moment, China only receives about 2% of our oil exports," he said. "We're looking to change that. Our government has approved new pipelines that will get our oil to global markets." US president Donald Trump's threats to derail the Nafta agreement and crack down on Canadian trade in general has accelerated Canada's efforts to find new markets. But the Green Party recently won a major victory in British Columbia, which the Trans Mountain pipeline will pass through, and has vowed to quash the project.
Carr's trip was an effort to reset energy relations and look to drum up new investment for the oil sands. But the trip is unlikely to yield much success on that front. In fact, it's more likely that Chinese companies will start to follow their international oil company rivals and exit the play.