China to buy stake in oilsands

Financial Post
December 30, 2009

Ottawa gives OK for investment by PetroChina

Industry Minister Tony Clement has approved a deal in which a state-owned Chinese company will invest $1.9 billion in Alberta oilsands properties.
The Minister of Industry is giving the go-ahead to one of China's biggest forays into Canada's natural resource sector, PetroChina International Investment Company Ltd.'s $1.9-billion investment in properties owned by Athabasca Oil Sands Corp.

In a statement late yesterday, Tony Clement said he approved the deal to purchase a majority stake in the MacKay and Dover Oil Sands projects "because I am satisfied that the investment is likely to be of net benefit to Canada."

Following its announcement on Aug. 31, the deal was hailed as a major endorsement by foreign investors in the oilsands, as well as a sign that China could be prepared to ramp up its investment in such projects, after lukewarm interest in recent years. At the time, the acquisition was expected to be completed on Oct. 31, and company officials said they did not anticipate much objection from the federal government.

The PetroChina transaction tested guidelines, issued by the Conservatives in 2007, governing takeovers by state-owned enterprises. PetroChina is the publicly traded arm of state-owned China National Petroleum.

Under the guidelines, the department reviewed the "nature and extent" of control by the Chinese government, PetroChina's corporate governance and reporting practices, as well as whether the acquired projects will operate on a "commercial" basis.

But the key determination by the government when it reviews a large foreign takeover is whether the country gains from the investment.

Clement singled out PetroChina's commitment to make capital expenditures of more than $250 million for its share of the projects over the next three years as a key factor in its determination of a "net benefit" to the country.

"In making my determination, I carefully considered the plans, undertakings and other information submitted by PetroChina," Clement said.
He also cited PetroChina's plan to increase employment levels at the projects and to maintain an Alberta head office for its operating companies as contributing factors.

If Clement had ruled against the takeover, it could have had a chilling effect on Chinese investment in Canadian natural resource companies. Such a move would have run counter to the Conservative government's long-standing goal of promoting competition and investment.

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