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TORONTO and CALGARY – The foreign investment rush that prompted Ottawa to cordon off Alberta’s oil sands can be traced to a furious pre-dawn game of Pictionary in the Chinese city of Panjin nearly three years ago.
Four Calgary oil executives had travelled to the city, three hours north of Beijing, to promote a vast Alberta oil sands deposit local geologists had never seen and a planned thermal drilling technology they didn’t understand. Growing frustrated, the Canadians grabbed markers and decorated a nearby easel, sketching fat rocks, granules of sand, buried oil reservoirs and complex math formulas. At first, even an attending Chinese translator was bewildered.
Although the game took time, there was magic in those markers. In the middle of the night, shortly before 3 a.m., officials of China’s Great Wall Drilling Co. began nodding their heads. Soon the nondescript office in a squat, stone building shook with laughter as relieved English and Chinese officials bowed and congratulated each other.
“It was a breakthrough,” says Hilary Foulkes, a former executive vice-president of Penn West Petroleum Ltd., who led the presentation for what she believed was a long-shot bid to attract scarce capital to the company’s Peace River oil sands property in Northern Alberta. “We made a connection and there was a camaraderie and trust that was developed.”
There were a few breakthroughs in Panjin that night. The late-night gathering sparked a joint venture between Penn West and a Chinese fund, China Investment Corp. (CIC).
It also set in motion a flood of interest from state-owned enterprises in the oil sands, culminating in CNOOC Ltd’s $15.1-billion (U.S.) takeover of Nexen Energy Inc. The massive Nexen deal – China’s largest overseas investment – led Ottawa to lay down new restrictions on foreign investment in Canada’s oil patch. Critically, those new guidelines push state-owned investors from China and other countries toward joint ventures, precisely the model pursued by Penn West.
Gwyn Morgan, former CEO of Encana Corp., says CIC’s investment in Penn West was a “page turner” that flashed a green light to Chinese investors after years of indifference from the Conservative government and the oil patch. “The fact that the deal was accepted, that it went through, was a sign we’re different than our neighbours to the south,” Mr. Morgan says.
Although Ottawa has slammed the brakes on state-owned takeovers, deal makers expect the volume of joint ventures will grow and Chinese companies will likely continue to dominate these energy partnerships.
“New transactions will get done and there will be joint ventures,” said Felix Chee, head of CIC’s Canadian branch. Indeed, six days after Ottawa’s policy shift, PetroChina International Investment Co. Ltd. announced Thursday a $2.2-billion (Canadian) investment to jointly develop a natural gas project with Encana.
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