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Sinopec to pay US$4.65bn in oil sands deal

MEETING STANDARDS The acquisition by the Chinese giant of a 9.03 percent interest in Syncrude Canada will require the approval of the governments of Canada and China


China’s state-owned Sinopec (中石化) plans to buy ConocoPhillips’ stake in the huge Syncrude project in Canada’s oil sands for US$4.65 billion, marking one of the country’s largest investments ever in North America.

ConocoPhillips, the US-based oil major, said on Monday it would sell its 9.03 percent interest in the Syncrude Canada Ltd project to China’s top refiner in a deal set to close in the third quarter.

The acquisition is not the first investment by a Chinese company in Canada’s oil sands, but it is the largest.

It underlines a resurgence in interest in the vast but difficult-to-extract energy resource located in the province of Alberta.

Investment in the oil sands has jumped since crude prices shot past US$80 a barrel with the global economic recovery gaining traction.

China has spent billions of dollars acquiring energy and mining assets around the world to help feed its fast-growing economy.

The deal differs from other Chinese oil sands acquisitions, which involved early-stage projects, FirstEnergy Capital Corp analyst Mike Dunn said. Syncrude, the largest project in the oil sands, has operated since 1978 and can now pump out 350,000 barrels a day, roughly 13 percent of Canada’s overall oil output.

For ConocoPhillips, the deal is part of a two-year, US$10 billion disposition program. When it first said it was putting the stake on the block in October, analysts pegged the value at between US$3.6 billion and US$4 billion.

After Monday’s announcement, ConocoPhillips shares climbed US$0.64, or 1 percent, to US$55.96 on the New York Stock Exchange.

“This deal goes a long way in helping them reach their US$10 billion asset-sale goal. It’s probably a bigger chunk than they had anticipated,” said Allen Good, analyst at Morningstar.

Sinopec already has an oil sands stake. In April last year, it bought an additional 10 percent interest in Total’s planned Northern Lights project for an undisclosed sum. Also last year, PetroChina (中石油) acquired a majority stake in leases held by Athabasca Oil Sands Corp for US$1.9 billion.

Sinopec’s latest deal requires approvals from the Canadian and Chinese governments.

Canada recently subjected deals involving foreign state-owned enterprises to more regulatory scrutiny, but has not rejected any oil sands transactions.

Asked about the deal during an event in Calgary, Canadian Finance Minister Jim Flaherty simply said that large investments must meet tests on whether they are in the national interest.

“There are a couple of standards that have to be met and I’m sure the process will be followed,” he told reporters.

Analysts said they do not see regulators blocking the deal, especially with Sinopec buying a minority stake in Syncrude.

“We’ve already seen a number of oil sands transactions that have been applauded by both the Alberta and federal governments, and there’s basically a green light given to foreign entities,” said Phil Skolnick, an analyst with Genuity Capital Markets.

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