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Oilpatch leading the tango with China

As the PetroChina-Athabasca deal shows, Canada’s energy companies want Chinese money more than the other way around.

Canadian Foreign Minister John Baird, left, is greeted by his Chinese counterpart Yang Jiechi during his visit to China’s Foreign Ministry office in Beijing, China, Monday, July 18, 2011. (Photo: Andy Wong/AP)

PetroChina’s purchase of the 40% of the McKay River oilsands project it doesn’t already own from Athabasca Oil Sands is just the latest example of China’s national oil companies snapping up Canadian energy reserves. Coming after China National Offshore Oil’s outright takeover of Opti Canada and Sinopec’s bid for Daylight Energy in 2011, it shows the NOCs are ready to own and operate Canadian assets outright.

But the deal also gives a hint of who’s really pursuing whom. It was Athabasca in this case that triggered a shotgun clause forcing PetroChina to buy its stake for $680 million (because this was part of the 2009 deal between the companies, the upsell does not require Investment Canada approval). Athabasca wanted the cash, it said, to pursue light oil opportunities—presumably with a shorter time horizon.

“It’s not just the Chinese who are eager to come in,” says Wenran Jiang, a University of Alberta professor who organizes an annual Canada-China energy forum. The NOCs are being approached by lawyers and investment bankers not just from Calgary but from Houston and Melbourne too, seeking patient capital for long-timeline projects while equity prices for energy companies have been steadily sinking on stock markets despite the high price of oil. “They’re swamped by these people,” Jiang says.

Now that they’re in the driver’s seat at McKay River, it will be interesting to see how they proceed. Will they hire an all-Canadian management team or tap some of their internal expertise? One of the lingering fears about NOC investment is that companies might just sit on high-cost Canadian assets for years without developing them, as a hedge against higher energy prices.

Jiang expects the opposite. “The Chinese,” he says, “are fast movers. It’s the western companies that delay.” He notes Sinopec’s disappointment when French-based Total SA, the majority owner and operator of the Northern Lights oilsands project, pushed the in-production date there back to 2024. “That’s totally frustrating to them,” he says.

The Chinese are interested in our resources, no question. But the Canadian demand for patient capital is just as strong.