China Buys Another Piece of Oil Patch

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"China had been content to learn the ropes in Canada, rather than operate the controls—this approach may change."

The Globe and Mail Carrie Tait

China is taking another major step into Canada's resource sector, striking a deal to buy an unloved chunk of the oil sands—one in need of cash and patience.

China National Offshore Oil Corp., the smallest of the country's three state-owned energy outfits, has agreed to a US$2.1B-deal to buy OPTI Canada Inc., struggling oil sands company with unique technology for extracting and processing bitumen from Alberta's oil sands.

The deal provides OPTI partner Nexen Inc. with a powerful new ally in its troubled Long Lake oil sands project, while handing CNOOC not only another slice of the world's second-largest oil reserves, but also the chance to learn about a new method of bitumen production.

Indeed, CNOOC, with roots as an offshore oil specialist, was the first Chinese company to invest in the oil sands, buying a stake in MEG Energy Ltd. in 2005. While this gave China an early peek at oil sands development, the OPTI purchase pairs CNOOC with a larger and more experienced partner in Nexen, and comes with a fresh, if struggling, way of dealing with the expensive business of oil sands.

Long Lake sits on bitumen that is extracted using steam-assisted gravity drainage techniques (SAGD). One pipe is used to inject steam into the reservoir, melting the thick, hard bitumen and allowing it to flow to the surface through a second pipe. Companies like Suncor Energy Inc. and Cenovus Energy Inc. have had success with this still-young technology, but their lands are considered top-notch.

All three of China's state-controlled energy companies—CNOOC, PetroChina International Investment Co. Ltd. and Sinopec Corp.—along with China Investment Corp., are players in Canada's oil patch. While they have been content to own minority stakes and learn the ropes, rather than operate the controls, this approach may change as they gain experience.

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