Canada continues to court China investment

15 June 2017, Week 23 Issue 647

Hong Kong-listed MIE Holdings has said it will buy CQ Energy Canada Partnership’s assets for C$722 million (US$544.1 million) as Chinese capital continues to flood into the North American country. Increasingly, Ottawa is hoping that some of this will target its struggling oil sands sector.

Last week, MIE Holdings confirmed that it had agreed to buy CQ Energy Canada Partnership, a Canadian exploration and production joint venture in which UK firm Centrica holds a 60% interest. In total, this will see the company acquire a range of natural gas assets and related infrastructure in Western Canada with a current output of 56,000 boepd.

“As part of its strategy [to rebuild] its asset portfolio ... the group constantly evaluates investment opportunities globally and is particularly drawn by Canada’s vast oil and natural gas resources with an established energy sector in a [developed nation],” MIE said in a statement.

This marked the latest investment in Canada by Chinese enterprises, with the Globe and Mail reporting last month that more than C$2 billion (US$1.51 billion) had been spent over the past few years. More could well be on their way, too.

Changing tact

Canadian Natural Resources Minister Jim Carr has just completed a five-day trade mission to China, aimed at courting investment into the country’s energy sector. This is something of a sharp turnaround.

Back in 2012, the Canadian government introduced measures to prevent foreign firms from gaining control of “strategic assets” following the high-profile purchase of Nexen by state-run CNOOC Ltd. This put the brakes on Chinese investment in oil sands projects, with PetroChina in particular struggling to complete the purchase of the 40% share it did not own in the Dover project from Canada’s Athabasca Oil. This was eventually finalised in 2014.

Much has changed over the past five years, though. In the last 12 months alone, Royal Dutch Shell, Statoil, Total and ConocoPhillips have all shed oil sands assets, deterred by low oil prices and a desire to focus on core interests. Four domestic firms currently control 70% of overall oil sands production.

With heavy investment needed to keep output from shrinking, overseas partners are now highly sought after. At the same time, the election of US President Donald Trump and his protectionist trade policies has placed an extra emphasis on diversifying these relationships, while Canadian Prime Minister Justin Trudeau has frequently stated his desire for closer ties with China.

Speaking to the Canadian Press, Carr said: “We think there is opportunity [for Chinese partners] and we laid out along with experts from the industry what we believe to be Canadian opportunities for them. Chinese investors are no different than investors from anywhere else. They look at costs, they look at prices and they make their investment decisions.”

However, this approach has not been without controversy. The acquisition by China’s Hytera Communications of Vancouver firm Norsat International, a satellite communications company, has drawn swift criticism from the opposition Conservative party over potential security concerns. A recent deal that saw Hong Kong-based O-Net Communications buy Montreal’s laser firm ITF Technologies, which partly operates in the military sphere, also came under fire.

“Unwanted influence”

Commenting on these agreements, Conservative spokesman Saro Khatchadourian said Ottawa’s change of heart had put the country in danger of unwanted influence.

“This government continues to put our national security at risk by allowing the Chinese unprecedented access to key, sensitive technology that compromises our national security,” he added.

This view was echoed over in the US, with a member of the US-China Economic and Security Review Commission, Michael Wessel, telling the Globe and Mail that the Norsat deal “raises significant national-security concerns for the US, as the company is a supplier to our military”.

He continued: “Canada may be willing to jeopardise its own security interests to gain favour with China, but it shouldn’t put the risks of a close ally in the process.”

Much of this ire is down to the fact that a full national security review was not carried out ahead of the purchase. With the Trudeau government keen to seek a bilateral free-trade deal, this has widely been viewed as a way to curry favour with Beijing, which views such processes as both unnecessary and protectionist.

If further sales of Canadian assets are to go ahead, as looks likely in the energy sector in particular, Trudeau may have to bow to this pressure. Chinese investors will need to be more heavily vetted. Yet the real concern may be not that they flock to purchase stakes into oil sands ventures, but instead follow other firms in exiting altogether.

With costs in the region some of the highest worldwide and prices still depressed, much of the sector’s shine has disappeared. Divestments may be likely – after all, as Carr said, Chinese investors are “no different” to those anywhere else in the world.

Edited by

Andrew Kemp

Editor

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