Sinopec to buy Canada oil sands stake for $83 mln

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This is part of a long-term plan by China to secure overseas oil assets:
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Sinopec to buy Canada oil sands stake for $83 mln

SINGAPORE, May 31 (Reuters) - Oil giant Sinopec Group has agreed to buy a 40 percent stake in an oil sands project in Canada for C$105 million ($83 million), the second such deal involving Chinese firms in just over a month.
Sinopec is buying the interest in Canada's C$4.5 billion Northern Lights oil sands project from privately held Synenco Energy Inc., the firms said on Tuesday.

Last month, CNOOC Ltd. , China's largest offshore oil producer, acquired an oil sands stake in Canada for $122 million.

"The move (the Sinopec acquisition) is in line with China's needs to secure oil assets. Oil sand investment is viable when oil prices are high," said Lawrence Lau, analyst at brokerage BOCI in Hong Kong.

State-run Chinese companies have spent billions of dollars on oil assets overseas to boost their businesses and secure supplies for a country that imports 40 percent of its needs.

Northern Lights is an oil sands mining, bitumen extraction and upgrading project in northeastern Alberta, designed to produce more than 100,000 barrels a day.

Calgary-based Synenco, owned by about 250 individual investors, hopes to file regulatory applications for the project in the next six to 12 months, with the aim of starting production by 2010, Chief Executive Jim Donnell said.

"We feel really good that we've chosen the right partner," Donnell said. "We have a very tight alignment of interests as it relates to project execution. They bring to bear tremendous technical capabilities -- engineering, design, procurement, construction and operations -- and certainly they have the financial wherewithal."

The company believes the deal will help it raise its share of the costs in debt and equity markets, he said. An initial public offering as the development moves closer to fruition is a possibility.

CANADA'S OIL SANDS

Developers mine oil sands in open pits before separating the oil with hot water and chemicals, or pump the bitumen to the surface with the aid of steam. The heavy crude is then upgraded into refinery-ready synthetic light oil.

Companies such as Shell Canada , Imperial Oil and Suncor Energy have been pumping tens of billions of dollars into oil sand projects to tap a resource that rivals Saudi Arabia's reserves in size but is much more expensive to produce.

China has long been interested in oil sands, whose commercial value has been boosted by high oil prices and technology development.

Co-operation between China and Canada started about two decades ago, with China National Petroleum Corp. investing C$6.64 million in an oil sands production technology project in Canada in 1993, CNPC has said. CNPC has used the technology to extract certain types of oil in China.

As part of the agreement announced on Tuesday, Sinopec has paid Synenco Energy Inc. C$38 million in cash for about a 14.5 percent stake in the project.

Sinopec will then contribute the acquired interest and more cash in return for a 40 percent stake in a new partnership that is 60 percent held by Synenco, which will be the operator of the project, the firms said.

Sinopec Group may consider selling the interest to its major listed subsidiary, Sinopec Corp. , once the project proves viable, CLSA analyst Gordon Kwan said.

CIBC World Markets advised Sinopec International Petroleum Exploration and Production Corp., a unit of Sinopec Group, on the deal.

(Additional reporting by Jeffrey Jones in Calgary and Wendy Lim in Hong Kong)