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Investments in oil patch raise many questions
While we sort out where we stand, Chinese money keeps buying up Canadian oil and gas reserves.
Sinopec’s $2.2-billion acquisition this week of shale gas producer Daylight Energy Ltd. is sure to be followed by more. Athabasca Oil Sands Corp.’ two major oil sands projects are in play because of put/call options with PetroChina that could increase the Chinese company’s ownership to 100% from 60%.
Birchcliff Energy Ltd., another unconventional gas producer, put itself on the block last week following unsolicited expressions of interest. Market speculation is bubbling about which company the Chinese will snap up next — from senior Talisman Energy Inc. to junior Celtic Exploration Ltd.
“In our view, [the Daylight Energy deal] is more than a simple one-time acquisition,” Stéfane Marion, chief economist and strategist at National Bank Financial Group, said in a note Tuesday. “It reflects the acceleration of a macro trend. If China is serious about letting its currency float in the next five years, there is no need for its government (and state owned enterprises) to own more than $3-trillion in foreign reserves. It makes more sense for China to start recycling its paper holdings into tangible assets.”
With oil and gas shares depressed by the global selloff, investment research firm Sanford C. Bernstein & Co. predicted in a report that Asian oil and gas companies will spend $150-billion in the next five years on global assets, including Canadian oil sands. Future deals would be “bigger and bolder,” it said.
The Chinese invasion, sweetened by big premiums, is hard not to like at a time of great market weakness, ideological confusion about fossil fuels and Canada/U.S. political brinkmanship over the Keystone XL oil sands pipeline. The federal government has been supportive, approving all acquisitions so far. As for the market, it can’t wait for the next big cheque.
Still, some questions need to be asked:
• Is Canada naïve to open its doors to Chinese investment in the name of free trade? Free market supporters say Canada is a trading nation and should welcome all foreign investment, regardless of where it comes from. It’s not so simple. China’s buying is being done by state-controlled companies that answer to a Communist regime, not the market.
For the rest of this article, please go to the National Post/Financial Post website: http://business.financialpost.com/2011/10/11/china-buying-while-we-talk/