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China strikes $4.65 billion oil sands deal

April 14, 2010 at 2:23 PM   |   Comments

BEIJING, April 14 (UPI) -- China Petrochemical Corporation will buy ConocoPhillips' stake in the Syncrude Canada oil sands project in Alberta for $4.65 billion.

The deal, confirmed this week by ConocoPhillips, represents state-owned Sinopec's second investment in an oil sands project since it spent $105 million in 2005 for a share in the Northern Lights project, also in Alberta.

Syncrude, the largest oil sands venture in the world, has a production capacity of 350,000 barrels per day. It involves surface mining, extraction and upgrading. At year-end 2009, its estimated reserves were 11.9 billion barrels.

The Conoco deal is the latest peg in China's spree of energy acquisitions to keep up with soaring demand as the world's largest energy consumer after the United States.

"The policy of energy security is fundamental to the overseas acquisitions by Chinese oil companies," Shi Yan, an energy analyst at UOB-Kay Hian Ltd. in Shanghai told Bloomberg News. "China's oil demand is increasing and domestic supplies cannot meet demand."

The BP Statistical Review of World Energy says, Chinese oil consumption reached 8 million barrels a day in 2008. Imports accounted for more than half of China's oil needs last year.

Early in March, China National Offshore Oil Corporation paid $3.1 billion for a 50 percent stake in Bridas Corp., an Argentine oil and gas company; later the same month PetroChina partnered with Shell in a $3.1 billion takeover of Arrow, an integrated Australian energy company.

And in 2009, China's state-owned companies spent $32 billion on energy and mining acquisitions, data compiled by Bloomberg News indicates.

The Conoco deal would give Sinopec, China's largest petroleum producer, a veto over whether the company should upgrade more oil in Alberta or export raw bitumen for processing, The Globe and Mail said.

Because upgraders bring jobs and tax revenues, Alberta has encouraged processing of bitumen in the province. Backed by producers, however, pipeline companies are boosting exports of raw bitumen to the United States.

More Asian interest in Canada's oil sands is expected, especially because of Enbridge Inc.'s proposed pipeline for shipping bitumen to the West Coast for export to Pacific Rim markets, including China.

But Canadian Oil Sands Chief Executive Officer Marcel Coutu, told The Globe and Mail that the Sinopec deal represents a new test for Ottawa's foreign-investment review as it is the first time a Chinese state-owned company is purchasing a stake in a major, producing oil company.

"The size and nature of the asset may cause the government to clarify its foreign-investment review policy," Coutu said.

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