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Thanks to acquisitions in the last few months, the three top state-controlled Chinese oil companies have become full participants in the Canadian oil and gas scene and are in control of projects in a Western industrialized economy for the first time.
But being in control doesn’t guarantee success. Now that they are in charge of their Canadian operations, Chinese players are facing the same hurdles as other foreign acquirers to make them work – plus a few more due to cultural differences.
“They are still on a learning curve. The jury is out on how they are going to manage those companies,” said Gordon Houlden, a former senior Canadian diplomat in China who is the director of the China Institute at the University of Alberta.
After years of warm-up through investments, joint ventures and partnerships with local operators, Chinese players made the leap to full ownership starting last July, when China National Offshore Oil Corp. (CNOOC), acquired 100% of insolvent oil sands developer Opti Canada Inc. for $2.1-billion.
Meanwhile, Sunshine Oil Sands Corp. was expected to become the first oil sands company to become publicly traded in Hong Kong this month, a year after introducing a group of strategic investors including China Life Insurance (Overseas) Co. and the Bank of China. However, according to reports Friday the IPO was cancelled.
All this is happening with federal government encouragement and approval, one of the reasons Prime Minister Stephen Harper’s visit next week is being “enthusiastically anticipated” in China, said Adam Waterous, vice-chairman and global head of investment banking at Scotia Capital, who was visiting Beijing this week.
With the U.S. rejecting a permit for the Keystone XL pipeline from Alberta to Texas and unable to absorb further Canadian natural gas amid its abundant domestic supplies, the Harper government has set aside previous worries about Chinese ownership of Canadian resources and is cultivating China as a new market for Canadian energy exports.
At the same time, Chinese interest in Canadian oil and gas has accelerated since the Keystone XL decision because there is widespread recognition that Canada needs to diversify its market, Mr. Waterous said.
Yet the strategy relies on many pieces falling into place.
One of them is new infrastructure to allow oil and gas to flow to Asia. While Chinese companies are okay with selling their oil and gas to the North American market for now, over the longer term they want to export across the Pacific.
Continuing opposition to the proposed Northern Gateway pipeline from Alberta to the West Coast is standing in the way of those plans and could influence future investment decisions by the Chinese and other oil sands operators.
The pipeline could be a sticking point for the Prime Minister next week, said Pau Woo, president and CEO of the Vancouver-based Asia Pacific Foundation of Canada.
“My view on how energy will play in this visit is the Prime Minister will want to underscore the importance of diversification, particularly to Asian markets and China specially, but that there is very little the Chinese can do to help the Prime Minister in his diversification aspirations, in the sense that the major stumbling block currently to exports of oil to Asia is a domestic problem, it’s nothing to do with the Chinese,” Mr. Woo said.
For the rest of this column, please go to the National Post/Financial Post website: http://business.financialpost.com/2012/02/03/china-faces-hurdles-in-oil-patch/?__lsa=4a14c8e4