Sinopec pays $4.65 billion for stake in Canadian oil sands project

China Petrochemical Corporation (Sinopec) will buy a 9.03% equity interest in ConocoPhillips oil sands project Syncrude for $4.65 billion.

The deal gives Sinopec a foothold in Canada's oil sands, one of the largest deposits of petroleum reserves and resources in the world. This is the second investment by the Chinese state-owned enterprise in an oil sands project following its acquisition of a stake in the Northern Lights oil sands project in 2005. Sinopec was advised by Deutsche Bank and took legal advice from Blakes, Cassel & Graydon.

The Syncrude project is the largest oil sands venture in the world with a production capacity of 350,000 barrels per day and encompasses surface mining, extraction and upgrading. It is located in northeastern Alberta in Canada and has been in production for over 30 years. Estimated reserves as of December 31, 2009 are 11.9 billion barrels. Other partners in the Syncrude JV include: Canadian Oil Sands; Imperial Oil Resources; Petro-Canada Oil and Gas; Nexen Oil Sands Partnership; Mocal Energy; and Murphy Oil.

The sale by ConocoPhillips, a Houston-based integrated energy company, is part of a phased divestment programme announced last year. Credit Suisse is the financial adviser to ConocoPhillips and Osler, Hoskin and Harcourt are providing legal counsel.

The deal is subject to regulatory approvals in Canada and China.

The deal is the biggest energy investment by a Chinese SOE in North America and follows close on the heels of other multi-billion dollar investments to secure natural resources by Asian companies. Earlier this week, Indian petrochemicals company Reliance Industries agreed to invest $1.7 billion to buy a 40% interest in a 300,000 acre natural gas field owned by US firm Atlas Energy.

Chinese companies are going all over the globe to stake a claim, generally preferring jurisdictions where their capital is welcome. In early March, Hong Kong-listed Cnooc paid $3.1 billion for a 50% stake in Argentine oil and gas company Bridas Corporation. Cnooc is 64.4% owned by Chinese SOE China National Offshore Oil Corporation. Later in March another SOE, PetroChina, partnered with Shell in a $3.1 billion takeover offer for Brisbane-based Arrow, an integrated Australian energy company focusing on the supply of coal seam gas (natural gas trapped in seams of coal).