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Sinopec’s investment in oil sands start of something big

Sinopec's investment in oil sands start of something big

Apr 15, 2010

by Paul Marck

World focus on Alberta as energy resurgence begins

By Paul Marck

If you buy something at auction and pay top buck, there will always be some who say you paid too much.

And that reportedly was the buzz in the petro-towers of Calgary earlier this week when it was announced that Chinese oil giant Sinopec had paid $4.65 billion for a nine per cent stake in Syncrude.

While it is a staggering amount of money, it looks more and more like an astute investment, following the initial raised eyebrows on Monday.

There were tire kickers. Imperial Oil/ Exxon could have increased their majority stake in Syncrude, but along with other North American energy companies, decided not to.

So it was up to China, which has gradually been making increasing higher investments in Alberta’s oil sands since 2005. Until now, the biggest investment was PetroChina’s $1.9-billion buy-in with Athabasca Oil Sands last August.

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Now Sinopec is the big player from China in the oilsands. Its stake gives Sinopec an investment in an operating oil sands mine. It’s not for site development, it’s not for building an upgrader, it’s for a share of an operation that pumps out more than 350,000 barrels of bitumen a day.

It’s an investment for the future, for China’s growing energy appetite that will help fuel the country’s ambitions to become factory to the world. It’s all about assuring a future secure supply of energy, even if there seems no way to get the bitumen to the Chinese market. Sinopec’s buy-in, besides having raised the share price and value of oil sands outfits, may add impetus to the bid for the Northern Gateway pipeline to the West Coast.

Or, Sinopec may be able to strike other deals to pipe bitumen along existing routes to Louisiana. After all, it doesn’t matter where the tankers put into port.

What Sinopec’s move means to the oil sands is this: It builds confidence for investors and companies alike that the oil sands are back in focus, after the retrenching and investment delays when the recession interrupted.

I think Sinopec’s sizeable presence in the oil sands means the start of something big. You can expect to see a lot more foreign acquisition of the oil sands.

After all, why not? Canada offers stable government, predictable regulatory regime, reasonable taxes and royalties, with no chance of civil insurrection or nationalization threat of foreign interests.

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