Kuwait Petroleum Corp. the state-owned oil company has signed a memorandum of understanding that would see the company invest around $4 billion in a joint venture with Athabasca Oil Corp. The venture would develop some of Athabasca's properties in the northern Alberta oil sands.
The agreement was confirmed by the Kuwaiti ambassador to Canada Ali al-Sammak. The final agreement is expected by October. Al-Sammak
said in a telephone interview."..
“It’s a plus-or-minus $4-billion deal and in October they’ll be coming back to follow up what has been signed....So we’re doing very good – this proves that we’re good close friends.”
Sammak said Kuwait Petroleum wants to diversity its operations beyond the Middle East and also gain access to oil sand extraction technology as Kuwait too has heavy oil fields.
Many foreign-owned and state-owned oil companies seek to invest in Canada's energy resources. The Conservative government has encouraged this as a means to diversity the sources of capital and also capture new markets. Recently Chinese state-owned CNOOC
has offered 15 billion for Calgary-based Nexen. Another deal involves Petronas of Malaysia who offered $6 billion for Progress Energy Resources Corp. Progress shareholders have approved that deal. Trading in Athabasca's stock was suspended on Friday before the news of the deal was announced.
These deals are just part of a host of pending foreign investments in the rich energy resources of Canada. Companies both state-owned and private from South Korea, Russia and many emerging Asian countries are negotiating with Calgary-based companies.
Many of the companies involved want the Conservative government to make its policy with respect to investment clearer. While there is a review to determine whether an investment is of net benefit to Canada, the exact criteria are not clear.
Some within the Conservative government do not want to treat aggressive state-owned corporations on the same footing as private companies since these companies may not act on purely market principles. These companies include not only Chinese state-owned companies but those of Malaysia and Kuwait as well. Immigration minister Jason Kenney is one of those critics although he would make an exception for Norway's Statoil since it is run on market principles. I find it odd to talk of oil producers and market principles.After all many oil producers belong to OPEC whose whole purpose is to manipulate the market and influence prices. The aggressive nature of the state oil companies Kenney fears often result in high prices for shares that shareholders could never expect in the market.
The spate of negotiations in Calgary are not simply the result of foreigners anxious to invest in Canadian resources. Canadian companies themselves are actively seeking out these investments since they themselves lack the capital to finance expensive and often risky oil sands projects.
Athabasca for example has acquired many properties and now has 1.6 million acres in the oil sands but not the capital for development. Athabasca was able to develop the Dover and Mackay River properties only after it raised $1.9 billion by selling a 60% stake to PetroChina International Investment Co. which is state-owned.
The Canadian Association of Petroleum Producers predicts it will cost $23 billion to produce oil sands oil in 2012. By 2020 this amount could more than quadruple to $100 billion. This amount of capital is just not available within Canada. Canada needs both foreign capital for development and foreign markets for the oil. However, Canada might be better off it concentrated more on developing in other areas rather than simply being a convenient sources for raw materials to fuel the value adding industries of other countries. Oil and natural gas do not go bad if left in the ground, they might just increase in value.
Production in the oil sands in particular present many dangers to the environment. The costs of environmental damage will probably fall on the Canadian taxpayer rather than investors foreign or otherwise.