Oil Sands Truth: Shut Down the Tar Sands

PetroChina to take full control of MacKay River in-situ project from Athabasca

PetroChina to take full control of MacKay River oilsands project from Athabasca
By Lauren Krugel, The Canadian Press
January 03, 2012

CALGARY - Athabasca Oil Sands Corp. has decided to sell its 40 per cent stake in the MacKay River oilsands project to joint-venture partner PetroChina, giving a Chinese oil giant full control of an oilsands asset for the first time.

Calgary-based Athabasca (TSX:ATH) said Tuesday it would exercise a put option — an exit strategy, of sorts — that was included in a 2009 deal to sell 60 per cent of the MacKay River and Dover oilsands projects to PetroChina for $1.9 billion.

Chinese companies have been snapping up resource assets around the world to secure future supplies of energy, minerals and other raw materials for the country's rapidly growing economy.

In Canada so far, Chinese state-owned outfits PetroChina, Sinopec, and China National Offshore Oil Co., or CNOOC, have preferred to take non-operating stakes in energy projects, relying on their Canadian partners' technical expertise to develop the resource.

Taking partial ownership is also seen as a way for the Chinese companies to make their investments more politically palatable. The MacKay River project would be the first to be fully owned by a Chinese firm.

"I would characterize this as a perfect divorce," said Athabasca CEO Sveinung Svarte in an interview.

Svarte said the partnership with PetroChina was working well, and that he's sad to see it end. But Athabasca would rather focus on developing projects it wholly owns, like the nearby Hangingstone oilsands project and light oil assets in Alberta's deep basin.

Since the PetroChina deal, which closed in 2010, Athabasca has grown its resource base from seven to 10 billion barrels.

"So for us to sell a few barrels is actually a very easy thing to decide," Svarte said.

The $680 million in proceeds Athabasca will get from the sale will help it save about $190 million in capital spending this year.

Ottawa's approval of the PetroChina-Athabasca deal in 2009 included the possibility of PetroChina eventually taking full control of the MacKay and Dover projects, so Svarte said he doesn't see any significant regulatory hurdles for Tuesday's deal.

The sale does, however, require Competition Bureau approval, which Svarte doesn't see as a major hurdle, since it wouldn't give PetroChina a dominant position in the oilsands.

On Dec. 23, the Alberta Energy Resources Conservation Board and Alberta Environment and Water approved the MacKay River project, triggering a 30-day period for PetroChina to possibly buy Athabasca's stake in the project.

The Dover project is expected to obtain regulatory approval about a year from now, and once it does, there will be an identical divestiture option.

Athabasca is looking to ink joint-venture deals for its other assets, but put-call options like the one it included in the PetroChina deal won't be necessary, said Svarte.

"That was a very unique mechanism in that deal. It was the first deal we made with anybody," said Svarte.

He said Athabasca didn't want to find itself stuck, like UTS Energy Corp. was when its flagship Fort Hills oilsands mine was shelved in 2008. UTS has since been taken over by the Canadian division of French energy giant Total SA.

"We won't need that for protection for future projects. We are now already grown up and autonomous, so we don't see any need for that," Svarte said.

The first phase of the MacKay River project is expected to produce 35,000 barrels per day, eventually expanding to 150,000 barrels.

Construction of the project will begin next month with startup targeted for 2014.

It will use steam-assisted gravity drainage, or SAGD, technology to extract bitumen. Under SAGD, oilsands companies pipe steam underground to melt thick tar-like oilsands deposits. The oil is then collected through a second pipeline and pumped to the surface.

Hangingstone has the potential to produce more than 80,000 barrels of bitumen per day, and first production is expected in 2014.

The company also has nearly 688,000 hectares of promising light oil and liquids-rich natural gas properties in Alberta. Athabasca is targeting a production rate of 8,000 to 10,000 barrels of oil equivalent per day by the end of 2012.

Athabasca plans to eventually get half of its output from the oilsands and half from its light oil assets.

Athabasca shares rose three per cent to $12.88 in midday trading on the Toronto Stock Exchange.


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