While we sort out where we stand, Chinese money keeps buying up Canadian oil and gas reserves.
Sinopec’s $2.2-billion acquisition this week of shale-gas producer Daylight Energy Ltd. is sure to be followed by more. Athabasca Oil Sands Corp.’s two major oil-sands projects are in play because of put/call options with PetroChina that could increase the Chinese company’s ownership to 100% from 60%. Birchcliff Energy Ltd., another unconventional gas producer, put itself on the block last week following unsolicited expressions of interest. Market speculation is bubbling about which company the Chinese will snap up next – from senior Talisman Energy Inc. to junior Celtic Exploration Ltd.
“In our view, [the Daylight Energy deal] is more than a simple one-time acquisition,” Stéfane Marion, chief economist and strategist at National Bank Financial Group, said in a note Tuesday. “It reflects the acceleration of a macro trend. If China is serious about letting its currency float in the next five years, there is no need for its government (and state-owned enterprises) to own more than $3-trillion in foreign reserves. It makes more sense for China to start recycling its paper holdings into tangible assets.”
With oil and gas shares depressed by the global sell-off, investment research firm Sanford C. Bernstein & Co. predicted in a report that Asian oil and gas companies will spend $150-billion in the next five years on global assets, including Canadian oil sands. Future deals would be “bigger and bolder,” it said.
The Chinese invasion, sweetened by big premiums, is hard not to like at a time of great market weakness, ideological confusion about fossil fuels and Canada/U.S. political brinkmanship over the Keystone XL oil-sands pipeline.
The federal government has been supportive, approving all acquisitions so far. As for the market, it can’t wait for the next big cheque.
Still, some questions need to be asked:
*Is Canada naïve to open its doors to Chinese investment in the name of free trade? Free-market supporters say Canada is a trading nation and should welcome all foreign investment, regardless of where it comes from.
It’s not so simple. China’s buying is being done by statecontrolled companies that answer to a Communist regime, not the market.
*Will the investment lead to the opening of a new market in Asia – or make us dependent on two economic powerhouses instead of one?
Supporters of Chinese deals say the cash allows Canada to capture capital to develop resources, lead to new customers for its energy outside the United States, and promise higher energy prices.
The wrinkle is that the more Canadian resources are controlled by China, the less say Canadians will have over how they are developed, where they are sold and for how much, putting China in the driver’s seat, much like the United States is now.
Chinese investment wouldn’t be as welcome if the United States, Canada’s natural and historic market for oil and gas, weren’t so conflicted about whether to support fossil fuels from Canada, as shown by the raging debate over Keystone XL, or encourage renewable energy alternatives.
*Hasn’t Chinese investment turned this into a false choice, since Canada’s fossil fuels will keep growing, just not to supply Americans?
*Will Chinese investment mean faster development – or slower? Deals involving Asian companies are motivated by receiving capital that is not available today in North America to more quickly develop Canada’s oil and gas resources. Yet the track record of Asian companies suggests otherwise. They have huge hierarchies, are risk-averse and are slow decision makers.
“Our greatest strengths in Western Canada resource development are a keen and hungry workforce, an abundance of data, a short-term turnover of leases, and a high recycle of producing oil and gas properties, leading to the most efficient resource development in the world,” one senior oil executive put it. “Historically, multinational energy company capital, with its latest source being Chinese, will tend to be a drag on our pace of development as investment decisions are very slow and asset rationalization is frowned on, reducing the effectiveness of our high-paced junior and intermediate oil and gas sector.”
Why aren’t green groups all over this? They’re running around Washington and the European Union, leveraging democracy to knock Canada’s oil sands and shale gas, while being silent about the change in ownership that is slowly taking place. Are they worried that influencing Chinese oil companies to improve environmental and safety standards will be about as likely – or welcome – as staging protests in Tiananmen Square?