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Thailand last week joined the crush of Asian countries rushing to acquire a stake in Canada's giant oil sands projects when its PTT Exploration & Production Public Co. Ltd. (OTC ADR: PEXNY) agreed to buy 40% of Statoil ASA's (NYSE ADR: STO) Canadian oil sands project for $2.3 billion.
Norway's Statoil will keep majority ownership and remain the primary operator in the Kai Kos Dehseh project in northern Alberta, which it bought in 2007, according to the deal announced on Tuesday.
Asian companies participating in oil sands projects now prefer to enter partnerships in the projects, leaving complicated field operations to other companies, according to Dr. Kent Moors, a consultant and global energy-sector insider who is also the founder and editor of The Energy Inner Circle, the newest Money Map Press advisory service.
"Several Chinese and other Asian companies have already farmed-in to projects. It is best for them to take a project interest, thereby controlling a percentage of the extraction, but not be the operating company [in the] partnership," Dr. Moors said in an e-mail interview with Money Morning.
Asian state oil firms, led by China, have been scrambling to acquire oil sands projects, spending billions to fuel their booming economies.
The most notable recent Asian entries into Canada's oil sands include:
- China Petroleum & Chemical Corp. (Sinopec) (NYSE ADR: SNP), China's largest oil refiner and second-biggest oil producer, agreed in April to pay ConocoPhillips (NYSE: COP) $4.65 billion to purchase a 9.03% stake in Syncrude Canada Ltd, the largest oil sands project.
- Penn West Energy Trust (NYSE: PWE) in May sold China Investment Corp., the government's giant investment fund, a 45% share of oil sands properties near Peace River, Alberta, for $801 million.
- In December 2009, the Canadian government gave formal approval for a PetroChina Co. Ltd. (NYSE ADR: PTR) deal to buy a 60% stake in two undeveloped oil sands properties held by Athabasca Oil Sands Corp. that could eventually produce as much as 500,000 barrels per day.
- Korea National Oil Corp. bought Newmont Mining Corp's (NYSE: NEM) BlackGold oil sands property for $270 million in July 2006.
- China National Offshore Oil Corp. (CNOOC) (NYSE ADR: CEO), China's giant offshore oil developer, in 2005 paid privately held MEG Energy Ltd $122 million for a 16.7% partnership stake to develop an oil sands project in northern Alberta that could eventually pump up to 210,000 bpd.
With oil prices now averaging more than $80 a barrel, the Asian oil sands rush is simply a reaction to market conditions, according to Dr. Moors.
"All oil sands development in Alberta is economically viable at current prices," Dr. Moors said. "An average per barrel price of $70-$72 is required to develop new fields, but current fields can be run profitably at $52-$55. Plus, the tax structure is now better in Alberta than the U.S. for operating companies."
[On Wednesday, crude oil for January delivery advanced $2.61 a barrel, or 3.2%, to close at $83.86 on the New York Mercantile Exchange – its highest price in more than a week, MarketWatch.com reported.]
PTTEP's deal represents the largest ever offshore investment by a Thai company, blowing past the $1.9 billion buyout of Australia's Centennial Coal by Banpu Public Co. Ltd. (PINK: BANPU) earlier this year, according to Thomson Reuters data.
"We view them as a new player with a fresh set of ideas," Statoil Canada President Lars Christian Bacher told Reuters in an interview. "Technology development has always been part of Statoil's DNA and both companies are on the same page when it comes to driving technology development."
"The project will have initial production at 10,000 bpd in early 2011. But the company plans to ramp up output to more than 300,000 bpd," Supanna Suwankird, analyst at Thanachart Securities in Bangkok, told Reuters.
PTTEP will put up $1.5 billion in cash and plans to finance the deal with $800 million in bonds and $500 million in loans from four foreign banks, Chief Executive Anon Sirisaengtaksin told reporters. The company competes with big Chinese oil firms such as CNOOC and Sinopec and is one Asia's Top 10 exploration firms.
Investors can expect to see more Asian companies looking to Canada's oil sands for future investment opportunities, according to Dr. Moors.
"With the declining production from conventional crude fields in Canada and the U.S. unconventional (primarily oil sands, bitumen, heavy oil and a bit of oil shale) has to step up and fill demand; otherwise it spells more dependence on imports," Dr. Moors wrote. "If Washington has to choose between Canadian oil sands or more imports, Canada wins. We will see more Asian interest."
Dr. Moors also offered a play for investors who want to get in on the oil sands rush.
"The most direct way to play it is the Guggenheim Canadian Energy Income Fund (NYSE: ENY), an exchange-traded fund (ETF) that focuses on the Canadian oil sands," said Dr. Moors, noting that the fund is already part of the portfolio of another of his trading services, the Energy Advantage.
[Editor's Note: Let's face it, energy is where it's at. Now and for the future. Supplies of such fossil-fuel mainstays as coal and crude oil are finite, and are on the decline. And the emergence of such new-economy powerhouses as China, India, Korea and others will ramp up demand – thereby accelerating the decline of global fossil-fuel supplies.
Now, there are ways to better utilize the fossil-fuel supplies that remain. This includes such substitutes as tar-sands crude. There are additives. And there are new, enhancing technologies.
There are also alternatives. Hybrid vehicles. Wind-turbine power. Fuel cells. New and safer commercial nuclear reactors.
There hasn't been a time this exciting for energy-sector investors since the Drake Well was drilled in Titusville, Pa., in 1859.
It's exciting. But it's also confusion. After all, how's the typical retail investor to know where to put his or her money?
That's where Dr. Kent Moors enters the picture. Dr. Moors is one of the best-connected energy-sector insiders in the world today. In fact, Money Morning Executive Editor William Patalon III interviewed Dr. Moors for this story just as the consultant was boarding an airplane for an overseas meeting (we can't say where he was flying to).
Dr. Moors knows the players, knows the governments, knows the technologies – and knows precisely when each profit opportunity will offer investors the maximum possible upside.
The "New Energy Sector" is wild jungle, with predators, hunters and traps galore. But there are riches to be found.
And with the right guide, you'll not only come out on the other side of this energy-sector safari alive … you'll bring a hefty share of the newfound wealth out, too.
Dr. Kent Moors is that "right guide." To find out how to work with him through his new advisory service, "The Energy Inner Circle," please click here.]
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