PetroChina Mulls Takeover of Athabasca Oilsands Project

A countdown is expected to begin within days on a process that could result in Chinese PetroChina taking 100 per cent ownership of a joint venture oilsands project in northern Alberta.

Athabasca Oil Sands Corp. reported that it has received Alberta order in council approval on the MacKay River project it is proposing to build with its 60 per cent partner, PetroChina, and is awaiting final endorsement from Alberta Environment.

Under its 2009 agreement with PetroChina, when it sold 60 per cent of the MacKay and Dover projects for $1.9 billion, final regulatory approval on each project triggers a 31-day "put/call" option under which Athabasca can choose to sell or PetroChina can choose to buy the 40 per cent it doesn't own.

The publicly traded arm of state-owned China National Petroleum Corp. would pay $680 million to take over the rest of MacKay, a 150,000barrel-per-day multiphase thermal project, and $1.32 billion to buy the rest of the 250,000bpd Dover project, approval of which could come as soon as late 2012.

Discussing the $819-million capital budget for 2012, president and CEO Sveinung Svarte said the par-ties are entering an intensive negotiating period in which decisions will determine the pace of Athabasca Oil Sands' future growth.

"We are talking to our partner at the moment . . . and discussing it with our board as well," he said. "It's a very important decision for both of us."

He said the company expects to sign more joint venture agreements next year and revealed it nearly signed a sweeping venture last spring.

"We were very close last spring to tie up a major joint venture across all of our assets," he said.

"Fortunately, we didn't proceed with that one. We would have given up too much of the upside too early. By upside, I mean additional resources we proved up during last season's drilling and importantly, as well, the Leduc carbonate TAGD test we are doing."

Athabasca announced it would spend $403 million in 2012 on its wholly owned oilsands prospects and an identical $403 million on its Deep Basin light oil prospects in west-central Alberta, reflecting its strategy to eventually produce equally from both resources, according to Svarte.

It also provided for $202 mil-lion to cover its obligations under the joint venture in case the put/call is not triggered. The funds would mainly be spent on the 35,000-bpd Mac-Kay first phase, but Svarte acknowledged the money would be loaned by PetroChina anyway under terms of the joint venture.

In a note, UBS analyst Chad Friess rated Athabasca's bud-get as "fairly aggressive," adding that he expects both MacKay and Dover to be sold under put/call provisions to give Athabasca about $1.5 billion in cash at the end of 2012.

"However we estimate a total cash requirement of $3.3 billion over the 2013-2015 time frame, or about $1.8 billion more than year-end 2012 cash of $1.5 billion," he wrote.

"As such, we believe Athabasca may begin to seriously pursue joint ventures on its 100 per cent owned assets, both on the oilsands and Deep Basin sides of the portfolio."

Analyst Jeff Martin of Peters & Co. agreed the put/call option will likely to be enacted within the next six weeks.

PetroChina's New York-traded stock climbed $5.35 to $119.77 US after it announced it expected total oil output for 2011 to be about two million barrels per day, up two per cent over 2010.

Athabascareported that it will build an $85-million, 63-kilometre pipeline to connect its conventional assets to a gas processing facility and expects to exit 2012 with 8,000 to 10,000 barrels of oil equivalent production per day from that resource.

Svarte said the company plans to drill 38 to 50 wells targeting mainly light oil in the Montney, but also probing Nordegg, Charlie Lake and Duvernay formations. The final number of wells, he said, would depend on whether Duvernay drilling is successful.

Athabasca holds over 680,000 hectares of conventional drilling rights in Alberta.

About $227 million of the oil-sands funding will go to its 100 per cent owned Hangingstone 1 project, a 12,000-bpd steam-assisted gravity drainage or SAGD facility estimated to cost about $43,000 per flowing barrel or $516 million.

Regulatory approval is expected in 2012 and first oil is forecast for 2014. Two other 35,000-bpd phases are planned.

Athabascaset aside $131 mil-lion in 2012 to be invested in the Dover West area to build a permanent road, plus under-take regulatory and engineering activities.

Athabascafiled a regulatory application for a 12,000-bpd SAGD project there in December.

It has also filed an application for a pilot project designed to extract bitumen using thermal-assisted gravity drainage technology or TAGD from carbonate formations. The budget includes $40 million for regulatory, engineering and procurement activities.

Svarte said a two-well test of the technology, which uses electric heaters in place of steam to cause the sticky bitumen to flow into a horizontal collector well, "looks very good," but declined to be specific about results.

At Birch, $45 million has been budgeted to prepare a regulatory application for a 12,000 bpd/d SAGD project.

All the 2012 activity will re-quire more staff - Svarte said Athabasca plans to increase its workforce of about 200 to 350 over 2012.

Athabascahas $1.35 billion of cash and short-term investments to pay for its capital program, it said.