Foreign Correspondence

[Amaunet]

China bites into the Canadian oilsands

In a small but long-awaited step Tuesday, one of China’s largest energy companies entered the oilsands business with CNOOC Ltd. acquiring nearly 17 per cent of private MEG Energy Corp. for $150 million.

By MICHAEL URBANSKI
Today staff
and The Canadian Press
Wednesday April 13, 2005

Fort McMurray Today — In a small but long-awaited step Tuesday, one of China’s largest energy companies entered the oilsands business with CNOOC Ltd. acquiring nearly 17 per cent of private MEG Energy Corp. for $150 million.

Calgary-based MEG has a large land base near Conklin, 150 kilometres southeast of Fort McMurray, with an estimated two billion barrels of recoverable bitumen in place.

Six-year-old MEG intends to start building a pilot project using steam-assisted gravity drainage (SAGD) technology to melt the tar-like bitumen deep underground before pumping the heavy oil to the surface.

Through incremental expansions, the company hopes to be producing 22,000 barrels per day by 2008.

“I am excited with our low cost entry into oilsands, gaining a footstep in this potential area,” Yang Hua, CNOOC’s chief financial officer said in a release from Hong Kong.

“Lower operating costs and higher recoveries resulting from recent advances in technologies have made many similar projects economically viable.”

MEG’s leases are near the Christina Lake SAGD oilsands plant, owned by Calgary-based energy giant EnCana Corp., and Oklahoma-based Devon Energy’s $500 million Jackfish project, currently under construction.

MEG chief financial officer Dale Hohm said Tuesday the company has been busy gathering capital needed to build its project, raising about $250 million in private equity last year alone.

“This financing with CNOOC is just the last in a series of equity financings that have been done over the course of the last two years.”

Hohm said Tuesday’s deal was “just a common share purchase, it is not a working interest in the property.” As such, CNOOC will have one of 10 directors on its board.

“MEG Energy has some very good assets in the Conklin area. We have strong leases, we have a group of management personnel who are very knowledgeable about developing oilsands.

“The item that we needed to complete the development is capital. So we’re very pleased that CNOOC, after evaluating a large number of projects, chose to invest in our company,” Hohm told Today.

It is no secret in the Canadian oilpatch that several large Chinese oil and gas companies have been closely eyeing the heated level of activity in the Alberta oilsands.

“The size of the oilsands resource is enormous. I think the people in Fort McMurray appreciate that, but the rest of the world is just waking up to that fact,” said Hohm.

“This is a huge resource and it requires multi-billion dollars of capital to develop it, and the international markets will need to provide some of that capital so that we can, as Canadians and Albertans, develop this very strategic resource.”

CNOOC Ltd. is publicly traded on the New York and Hong Kong stock exchanges and is a 70 per cent owned subsidiary of CNOOC, China’s largest producer of offshore crude oil and natural gas and one of the largest independent oil and gas exploration and production companies in the world.
The company and its subsidiaries operate in offshore oil and natural gas exploration, development, production and sales, with major oil production off the coasts of China and Indonesia and assets in Australia.

It is also partnered with another Canadian oil and gas company Husky Energy in the Wenchang oilfield in the South China Sea.
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