Analysis: Asian buyers throw weight around Canada oil sands
CALGARY, Alberta |
(Reuters) - A wave of high-priced acquisitions in the Alberta oil sands by Asian state oil companies and wealth funds is making it increasingly tough for Canadian investors to compete.
Chinese, South Korean, and now Thai investors have mounted an investment rush in northern Alberta. Backed by their governments' desire to secure long-term oil supplies for booming economies, they have had the financial muscle to pay top dollar for a piece of the largest oil resource outside the Middle East.
Most acquisitions have been stakes in largely undeveloped projects, and analysts and bankers say the buyers have shown the patience to sit tight and learn the business where many of the locals would be clamoring for cash flow.
"The Asian sovereign entities have a capital cost advantage," Canaccord Genuity analyst Phil Skolnick said. "Any asset up for sale that's of interest to those sorts of entities, it's going to be very tough to compete with them."
A Canadian or U.S. player typically shoots for a 10 percent return or more to make up for cost of capital, and prices for recent deals make that kind of return impossible in the short to medium term, Skolnick said.
The shopping spree picked last week, when Thailand's PTT Exploration and Production said it will buy 40 percent of Statoil's early-stage Kai Kos Dehseh project for $2.3 billion.
That is $300 million more than Statoil paid for the entire asset just three years ago, and on a per-barrel basis is the priciest deal yet for an early-stage development.
The year's richest asset buy was Sinopec Corp's $4.65 billion acquisition of ConocoPhillips' 9.03 percent stake in the Syncrude joint venture.
Asian appetite has increased over the past five years and is expected to accelerate again because the oil sands are seen as one of a few energy investment opportunities in the world that offer large resources and stable politics.
"These aren't going to be the last. We are aware of other discussions going on along these similar lines," said Michael Gosselin, managing director and senior banker at BNP Paribas' Canadian division.
"Looking 20 years down the road, I think Canada is going to end up supplying a lot of Asia-Pacific's energy needs versus the primary market being the U.S. We're going to see that pendulum swing a bit more."
'NOT GIVING AWAY THE STORE'
Besides low capital costs, Asian investors require a host of other factors to make a deal successful, including local knowledge, technical expertise in a complex industry and marketing networks for the eventual production, Gosselin said.
That is why many of the buyers have been willing to pay a premium for stakes in projects run by local developers.
"The Canadian companies that are doing this, they're not giving away the store. They're giving away 30 percent of the economics for 50 percent of the cost," he said.
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