MercoPress. South Atlantic News Agency

Chinese company moves heavily into Canadian oil sands

The Chinese operation is seen as an injection boost since oil sands are believed to be profitable when the oil barrel is above 80 US dollars.

PetroChina plans to acquire a majority stake in Canada’s Athabasca Oil Sands which holds the largest lease in Alberta’s oil sands. The 1.7 billion US dollars deal with Asia’s largest oil company means taking control of 60% of the 1.3 million acres of oil sand leases held by Athabasca.

The holdings in the MacKay River and Dover fields are believed to hold about five billion barrels of oil, and Canada's government is expected to back the deal.

Canada's Alberta oil sands hold the world's second-largest crude reserves, but the cost of extraction is high. This is because the process of separating the oil from the sand is both energy and labour intensive, and as such it has only been cost effective when global oil prices have been high.

“Oil sands projects are very capital-intensive long-term investments and difficult to fully finance in the traditional equity market,” Athabasca Chairman Bill Gallacher said in a statement.

“From our perspective, we're very excited about having the opportunity to partner with such a large and substantial company that has the technological capabilities to help move this forward,” Athabasca chairman Bill Gallacher said.

Analysts say world oil prices need to be above 80 US dollars a barrel for the Canadian oil sands to be viable.

Canada's oil sands are estimated to hold a total 173 billion barrels of oil, the world's second-largest reserves behind Saudi Arabia.

Chinese companies have engaged in a months-long buying spree of global petroleum assets, snapping up a refinery and oil and gas properties in Asia, Russia, South America and Africa. But for Canada the acquisition of Alberta assets serves as a much-needed vote of confidence.

Canada's energy industry has spent more than a year watching oil prices fall and, in their wake, tens of billions in capital spending in oil sands cancelled or delayed.

Many see the Athabasca deal as a sign that stability – and even growth – is returning. Chinese companies have attracted attention for their bids this year to buy two Canadian-listed companies with foreign assets – Verenex Energy Inc. and Addax Petroleum Corp. – but they have made steady inroads into the oil sands as well.

Earlier this year, Sinopec raised its stake in French giant Total SA's Northern Lights project to 50%. In 2005, the Chinese National Offshore Oil Corp. spent 150 million USD for a 16.7% stake in privately-held MEG Energy Corp, while in 2007, CNPC bought 11 oil sands leases containing reserves of about 1.9 billion barrels.

Athabasca has applied for permission to build two pilot projects, but does not expect to begin commercial production until at least 2014, when it hopes to turn on an initial, 35,000 barrel-a-day phase of production from MacKay River.