Sinopec to pay $4.65 billion in oil sands deal

CALGARY, Alberta Mon Apr 12, 2010 6:25pm EDT

An attendant fills the tank of a vehicle at a Sinopec gas station in Changzhi, Shanxi province March 28, 2010. REUTERS/Stringer

An attendant fills the tank of a vehicle at a Sinopec gas station in Changzhi, Shanxi province March 28, 2010.

Credit: Reuters/Stringer

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CALGARY, Alberta (Reuters) - China's state-owned Sinopec plans to buy ConocoPhillips' stake in the huge Syncrude project in Canada's oil sands for $4.65 billion, marking one of the Asian country's largest investments ever in North America.

ConocoPhillips, the U.S.-based oil major, said on Monday it will sell its 9.03 percent interest in the Syncrude Canada Ltd project to China's top refiner in a deal set to close in the third quarter.

The acquisition is not the first investment by a Chinese company in Canada's oil sands but it is the largest.

It underlines a resurgence in interest in the vast but difficult-to-extract energy resource located in the province of Alberta. Investment in the oil sands has jumped since crude prices shot past $80 a barrel with the global economic recovery gaining traction.

The price "is more than the market was expecting -- they were expecting about $4 billion," said Phil Skolnick, an analyst with Genuity Capital Markets. "It just shows that the Chinese are a different kind of buyer."

Indeed, the state companies can take a longer-term view of major investments in sectors such as energy, where they have outbid many domestic players in recently years, having no need to tap public markets for financing.

China has spent billions of dollars acquiring energy and mining assets around the world to help feed its fast-growing economy.

The deal differs from other Chinese oil sands acquisitions, which involved early-stage projects, FirstEnergy Capital Corp analyst Mike Dunn said. Syncrude, the largest project in the oil sands, has operated since 1978, and can now pump out 350,000 barrels a day, roughly 13 percent of Canada's overall oil output.

For ConocoPhillips, the deal is part of a two-year, $10 billion disposition program. When it first said it was putting the stake on the block last October, analysts pegged the value at $3.6 billion to $4 billion.

After Monday's announcement, ConocoPhillips shares climbed 64 cents, or 1 percent, to $55.96 on the New York Stock Exchange.

"This deal goes a long way in helping them reach their $10 billion asset-sale goal. It's probably a bigger chunk than they had anticipated," said Allen Good, analyst with Morningstar.

The oil sands make up the largest crude deposit outside the Middle East, a resource attracting a Who's Who of the global oil industry willing to pay extra in development costs in exchange for a secure supply in a politically stable country.

Sinopec already has an oil sands stake. Last April, it bought an additional 10 percent interest in Total's planned Northern Lights project for an undisclosed sum. Also in 2009, PetroChina acquired a majority stake in leases held by Athabasca Oil Sands Corp for $1.9 billion.

Sinopec's latest deal requires approvals from governments in Canada and China. Canada recently subjected deals involving foreign state-owned enterprises to more regulatory scrutiny, but has not rejected any oil sands transactions.

Analysts said they do not see regulators blocking the deal, especially with Sinopec buying a minority stake in Syncrude.

"We've already seen a number of oil sands transactions that have been applauded by both the Alberta and federal governments, and there's basically a green light given to foreign entities," Skolnick said.

Syncrude's largest owner, Canadian Oil Sands Trust, was seen as a prospective buyer of ConocoPhillips' Syncrude stake. Officials at the trust, which has a 37 percent interest, were not immediately available for comment.

Its trust units jumped 5 percent to C$32.22 on the Toronto Stock Exchange. The value of the deal showed the trust is likely worth more than the market had been affording it, although not the price Sinopec was paying, Skolnick said.

Syncrude's other owners are Imperial Oil Ltd, Suncor Energy Inc, Nexen Inc, Murphy Oil Corp and Nippon Oil Corp unit Mocal Energy.

($1=$1 Canadian)

(Additional reporting by Mike Erman in New York, Anna Driver in Houston, Louise Egan in Ottawa and Pav Jordan in Toronto; editing by Frank McGurty)

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Comments (4)
Blackbird1996 wrote:
I guess the U.S. doesn’t want to be energy independent from the middle east after all. Why aren’t we securing more contracts with our friendly neighbors the Canadians? The marginally higher cost of refining oil sands is much less than the cost of American lives and military expense, not to mention tax payer expense! What the heck are American companies thinking? Why aren’t our politicians pushing for this?

Apr 12, 2010 2:37pm EDT  --  Report as abuse
Tom_M8 wrote:
Blackbird1996,
I’m not an expert on the technology , of which I’m certain it will be pointed out on here, however it is my understanding from what I have read is that the process is energy intensive (2-3 times over traditional methods) to heat extract the oil from tar sands & it is not very carbon friendly so it will be expensive in both environmental & economic costs because it is a dirty process and it will be subject to future carbon taxes. I do know from my stock holder reports that ConocoPhillips is a successful company so maybe they know what they are doing by possibly investing their capitol in other emerging energy technologies, ones that create more jobs too. At least Canada will be able to enforce China’s compliance to environmental safeguards (hopefully). There is a risk that affects us all too: http://motherjones.com/politics/2008/05/scenes-tar-wars ,
plus you can’t drink or grow crops with oil and there is a finite amount of clean drinkable water on our world.

Maybe our troops could come home and work in those safe civilian technologies since we get most of our oil from friendly nations. THESE are the top ten countries in 2009 that the U.S. imports from:

1. Canada
2. Mexico
3. Saudi Arabia
4. Venezuela
5. Nigeria
6. Angola
7. Iraq
8. Algeria
9. United Kingdom
10. Brazil

In Iraq there were no WMD’s, the nation produces a smaller percentage of oil for the US than most realize, 1 million dead, 4 million displaced Iraqi civilians, over 5,000 of our Sons & Daughters dead, and the money we borrowed from China to pay for that war is boosting the growth of China’s economy. My other guess is that China offered Canada a better deal than any US company could compete with since they have more money.

Apr 12, 2010 7:02pm EDT  --  Report as abuse
melkiki1266 wrote:
Who cares!!! My boyfriend thinks the same with me. He- is eight years older than me, lol. We met online at an age gap dating site[_www. A G E R O M A N C E com_]—a nice and free place for Younger- Women and Older Men, or Older Women and Younger Men, to interact with each other. Maybe you wanna check out or- tell your friends.

Apr 12, 2010 8:03pm EDT  --  Report as abuse
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