The acquisition of a 9% stake in the Syncrude oil sands venture by China’s Sinopec for $4.65 billion – substantially more than expected – could pave the way for a revaluation of Canada’s vast deposits of a resource that is environmentally controversial.
Canadian Oil Sands Trust, the biggest stakeholder in Syncrude with 36%, led energy stocks higher in Toronto Stock Exchange trading after the Chinese company paid a hefty premium for the stake held by ConocoPhillips. Part of the stock’s gain was due to relief that Canadian Oil Sands would not be selling new shares to acquire the stake itself.
The investment is the largest so far by a Chinese company in a North American energy project as China continues to scour the globe for energy resources.
Sinopec is the international arm of China Petroleum & Chemical Corp. The new acquisition follows the February purchase of a $1.9 billion stake in Athabasca Oil Sands by PetroChina. Sinopec also holds a 50% stake in another oil sands venture, Total E&P Canada’s Northern Lights project.
Syncrude, which has a capacity of about 350,000 barrels of oil a day, is the largest oil sands producer in Canada. Other partners in the venture are Imperial Oil, a unit of ExxonMobil and operator of the project; Suncor Energy; Nexen; Murphy Oil, and Nippon Oil’s Mocal Energy.
ConocoPhillips had announced last October that it would sell the stake as part of its effort to raise $10 billion in asset sales to strengthen its balance sheet.
The price offered by Sinopec was more than 50% higher than the $3 billion top estimate of analysts for the value of the stake.
Andrew Willis, a blogger for the Canadian daily Globe and Mail, asked whether it might be time to revisit the question of how much the oil sand resources are worth.
“Headlines on Syncrude in recent months have focused on ducks that died last year in its tailings ponds,” Willis wrote. “While our hearts go out to our feathered friends, it’s possible that investors got a little too caught up in the headwinds facing the oil sands, and lost sight of the potential of this resource.”
Syncrude went on trial in Canada last week for failure to prevent ducks and other water fowl from landing on toxic “tailings ponds” created during the production of oil from oil sands.
By. Darrell Delamaide