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Barely two years since the national outcry over China’s aggressive push into Canada’s oil patch, some of the major acquisitions are looking messy to hopeless.
Instead of reaping the rewards of their first big step out into a free market oil industry, Chinese investors seem more focused on cutting costs and bailing out. Scores of executives have been fired for failing to deliver.
Some blame Ottawa’s more restrictive foreign ownership rules for the subsequent Chinese investment chill. But China’s increasingly sour mood has more to do with bitterness over the high prices paid, frustrations with long timelines to turn resources into production and Canada’s difficult operating environment. One senior Chinese investor said there were expectations that operating in Canada would be easy once federal government approval was obtained.
The change in mood is having an impact. Among the companies feeling the brunt is Athabasca Oil Corp., which is awaiting a $1.23-billion payout from PetroChina after the Calgary-based company exercised a put option to sell its remaining stake in the Dover oil sands project.
Athabasca chief operating officer Rob Broen said at a TD Securities investment conference this week his company is in the final stages of closing the deal and “expects to receive the proceeds in the near term.”
But there is doubt in the market that PetroChina, China’s largest oil company, will follow through as quickly as Athabasca hopes, as shown by Athabasca’s weakening shares in recent days. Athabasca previously said it expected the proceeds by the end of June. There is no deadline for PetroChina to hand over the cash, other than it is obligated by a contract to do it in a reasonable timeframe. Athabasca needs the money to fund other parts of its business and finalize joint ventures on its Duvernay tight oil play.
It doesn’t help that Zhiming Li has unexpectedly left his job as the president and CEO of Brion Energy Corp., the company that operates PetroChina’s energy assets in Canada and Athabasca’s main point of contact in Canada.
An interim CEO has been appointed until a permanent CEO replacement is identified, Kristi Baron, a spokeswoman for Brion, said in an emailed statement Thursday.
It wouldn’t be a surprise if PetroChina, roiled by corruption charges in Beijing and criticized for investing in Canadian startups rather than producing assets, tried to renegotiate the Athabasca deal to reduce its payment. If that’s the gameplan, PetroChina should brace for big reputational damage for failing to deliver on its obligations. The company also backed out of a $5.4-billion deal with Encana Corp. three years ago involving the purchase of half of Encana’s Cutbank Ridge assets, shocking investors and pushing Encana into difficulties.
Another company feeling pain is Sunshine Oilsands Ltd. The oil sands startup started developing its West Ells project with backing of Chinese money. But the Chinese have since turned off the taps and Sunshine halted construction of its project last August due to a shortfall of capital. Suppliers are suing the company, but have agreed so far to give it more time to raise money.
For the rest of this column, click here: http://business.financialpost.com/2014/07/10/why-chinas-mood-is-souring-on-canadas-oil-patch/?__lsa=6d59-2d4d