Private Chinese Firms Join Hunt in Alberta's Oil Patch

As Ottawa scrutinizes two oil patch takeover proposals by foreign state-owned entities, privately owned Chinese companies are increasingly on the prowl in Alberta.

Chinese national energy companies such as PetroChina Co. Ltd. and China Petroleum and Chemical Corp. (Sinopec) own a variety of oil operations and properties in the Alberta oil patch. Now, private Chinese companies with no ownership by Beijing are scouting the province in an effort to position themselves for possible investments in oil properties and infrastructure.

Rongsheng Petro Chemical Co. Ltd., a major Chinese petrochemical company, visited Alberta at the end of September, meeting with bankers and industry executives, according to industry sources. Rongsheng inquired about everything from producing oil and gas to upgrading and refining crude. Such investments would help secure ingredients needed to fuel China's manufacturing industry. Rongsheng chairman Li Shui Rong was part of the tour, according to a source.

Private Chinese corporations hope to piggyback on the success of their state-owned counterparts, which aim to grow in Canada.

Ottawa is considering whether to approve the $15.1-billion (U.S.) bid by China's CNOOC Ltd. for Nexen Inc., which owns a majority stake in a producing oil sands project it shares with its suitor. Meanwhile, a bid by Malaysia's Petronas for Progress Energy Resources Corp. is also under consideration by the Canadian government.

It's early days for private companies looking in Alberta.

"The few [private Chinese companies] that I have met with have really just been kind of: ‘We're over here in an exploratory phase because we've seen the NOCs [national oil companies] over here and that kind of opens the door for us to explore those opportunities as well,'" said Greg Stringham, vice-president, markets and oil sands at the Canadian Association of Petroleum Producers. "Certainly once the NOCs have come over and started looking at those things, it does provide them an opportunity to look in the same kind of countries."

Mr. Stringham met with Rongsheng officials and said the company was interested in both upstream and downstream investments. Upstream assets include oil and gas fields, while downstream translates into processing facilities such as upgraders. Some refineries and upgraders have been shuttered in North America because of their financial volatility, but companies like Rongsheng have a different rationale for investing in processing complexes.

"It was essentially: ‘We are looking for feedstock that is important for our business over there. And that's why we're here looking for opportunities to get that," Mr. Stringham said.

Rongsheng officials could not be reached for comment in China.

China's state-owned energy companies already own a variety of assets in Alberta. Sinopec, for example, owns a slice of Syncrude Canada Ltd. and all of Daylight Energy Ltd.

CNOOC Ltd. has a stake in Nexen's Long Lake oil sands project, thanks to its acquisition of Opti Canada Ltd. CNOOC made China's first investment in the oil sands when it invested in MEG Energy Corp. in 2005.

PetroChina's holdings include all of the undeveloped MacKay River project and part of the Dover property.

Ottawa is set to rule on CNOOC's bid for Nexen on Dec. 10, although the deadline can be extended.

Further complicating the debate is Malaysia's bid for Progress Energy. Petronas and Progress, which already have a joint venture partnership, plan to build a liquefied natural gas export facility in Prince Rupert, B.C.

Canada wants to develop the LNG export industry, but so far, the West Coast lacks export terminals.

Industry Minister Christian Paradis blocked the Petronas bid for Progress in October, saying the deal would not benefit Canada. The Malaysian company has since sweetened its promises and Mr. Paradis must issue his ruling within an undisclosed amount of time. Prime Minister Stephen Harper has promised to clarify the net benefit test soon, although he has not set a deadline.

Ian MacGregor, chairman of North West Upgrading Inc., which is building a refinery with Canadian Natural Resources Ltd., has not been contacted by Rongsheng, but believes the country would benefit if foreigners invested in more oil processing in Canada. There is enough raw bitumen and oil available that competitors would not create a shortage of feedstock necessary to make refined products.

"It is wonderful for the province and it is great for Canada because when you make these things, you double or triple the value," he said.

"If you think of bitumen being worth 50 bucks a barrel, if I make something worth $100, then that extra $50 of extra margin pays taxes. So 30 per cent of that fifty bucks ends up sticking in Canada to pay for hospitals, schools, roads, and everything else you need."