There is a growing trend in Alberta’s oil sands, one of the world’s largest sources of oil reserves, for companies and projects to welcome overseas investment to fund major developments in preference to traditional domestic and U.S. sources. Oil sands projects are long term, capital intensive projects that are difficult to finance in the traditional equity and debt markets, but that provide viable investment options to investors seeking longer term opportunities. In-bound investors, specifically state-owned entities, have the ability to invest large amounts of available capital, which allow undeveloped projects, which were hit hard by the recent recession and the volatility in crude oil prices, to move forward. Due to increased global energy demands, especially in emerging economies, many countries are considering investment in secure hydrocarbon resources. As the availability of conventional reserves decreases, the oil sands offer a stable political environment, proven reserves, developed infrastructure, sophisticated markets and the necessary expertise, to develop larger projects. Overall, approximately US$13 billion is expected to be invested in Alberta’s oil sands in 2010, which is an increase of US$2 billion from 2009. This increased investment, partially from overseas state-owned sources, has the Canadian Association of Petroleum Producers (CAPP) predicting that overall crude production from oil sands and conventional sources will double to approximately 3.5 million barrels per day by 2025.

So far, the Canadian government has put up little resistance to investment by international, state-owned corporations. Canadian legislation governing these types of transactions is very transparent to, and well understood by, those wishing to invest. Under the current Investment Canada Act, mergers and acquisitions are subject to review where the value of the target is greater than C$600 million. This level, at which a regulatory review is automatically triggered, is expected to be raised to C$1 billion, in the future. Canada requires that mergers or acquisitions result in a “net benefit” to Canada. Increased employment opportunities for Canadians, increased economic activity, appointment of Canadians to boards of directors, and the listing of shares on a Canadian stock exchange are just some factors considered in determining whether a “net benefit” will result from a transaction. Approval of an investment proposal under the Investment Canada Act typically takes from 30 to 75 days. Under the Competition Act, transactions that do not substantially prevent or lessen competition in respect of the relevant product or geographical area will be permitted. The review process under the Competition Act, which takes approximately five months, is rarely problematic in the Canadian oil and gas industry, which is recognized as being diffuse both vertically and horizontally.

In 2007, the Canadian government introduced “Guidelines for Take-overs by State Owned Enterprises” to supplement existing legislation. The guidelines require Industry Canada to review the “nature and extent” of control by an overseas government, the acquiring entity’s corporate governance and reporting practices, and whether the acquired projects will operate on a “commercial basis”. There is also a provision allowing the Minister to review transactions that could be “injurious to national security”. A recent example of an approved deal is PetroChina’s agreement to acquire a 60% interest in two oil sands projects from Athabasca Oil Sands Corporation (AOSC), PetroChina committed to exporting oil sands production in a commercial manner and to refrain from undertaking what would otherwise be unprofitable projects simply to fulfilling oil demands in China. Transactions will likely continue to be approved under national security provisions where the overseas acquirer commits to a transparent project and investment strategy with commercially realistic objectives and criteria.

Canada’s willingness to entertain in-bound oil sands investment by state-owned entities has so far resulted in China, India, European and Scandinavian countries, Korea, and Japan all recently expressing interest in and in some cases successfully taking advantage of, available investment opportunities. To this point, most state-owned companies have refrained from outright acquisitions, instead preferring various forms of joint ventures. This reticence is due, at least in part, to political sensitivities associated with entry into a free-market economy with which the overseas investor may be unfamiliar and relative technical inexperience in the oil sands or with northern climates generally or with heavy oil and bitumen extraction in particular.


China’s interest in the oil sands appears to stem from its reliance on oil imports to meet energy demands. China has now surpassed the U.S. as the largest energy consumer in the world. It currently imports 50% of its oil, up from 1% in 1993. The U.S. Department of Energy estimates that, by 2025, 70% of oil consumed by China will be imported. Accordingly, China will be increasingly motivated to invest in the oil sands to secure a stable source of hydrocarbon.

PetroChina’s joint venture with AOSC, approved in February 2010 and in respect of which PetroChina has invested US $1.9 billion, marked China’s first large investment in the oil sands. As a result, PetroChina holds a 60% interest in Athabasca’s Mackay River and Dover Oil Sands projects and ultimately has an option to acquire from AOSC the minority position that it does not already own. These reserves are located in northeastern Alberta and contain approximately five billion barrels of oil. PetroChina currently operates several world-class, heavy oil projects in China that incorporate in-situ extraction methodologies, including firefloods and other sophisticated technology. It might reasonably be expected that previous experience in heavy oil will translate into efficient development of the Canadian projects.

In April 2010, Sinopec paid US$4.65 billion for ConocoPhillips Co.’s 9% stake in Syncrude Canada Ltd., the largest oil sands operator in the world. The deal gives Sinopec a veto over decisions regarding whether to export raw bitumen for processing or to upgrade the bitumen in Alberta. Alberta has encouraged the processing of raw bitumen in the province because it increases employment and tax revenue. Sinopec, Asia’s largest refiner, has also recently expanded its capacity for upgrading heavy oil into synthetic crude oil in China. Sinopec continues to hold a 50% interest in Total SA’s proposed Northern Lights oil sands project which is currently in development hiatus.

The third major Chinese energy deal this year saw China Investment Corp. (CIC) invest US $817 million in a Penn West Energy Trust project. In addition, CIC agreed to pay US $435 million for a 5% equity interest in Penn West. The project involves bitumen reserves which were previously undeveloped due to insufficient capital. Penn West will retain operational control of the project while simultaneously benefiting from Chinese expertise in enhanced oil recovery and, to the extent required, access to Chinese-made equipment. CIC is a state-owned investment firm with existing equity positions in the Canadian mining industry and possessing one of the world’s largest capital pools.

The president of Chinese National Offshore Oil Corporation (CNOOC), which already holds a 50% stake in MEG Energy Corporation, believes that Chinese companies are set to spend many more billions of dollars on Canadian oil and gas properties in the next few years as a means of meeting China’s growing energy demands. Certain pipeline projects, such as Enbridge’s Northern Gateway proposal, are expected to further encourage Asian investment as the ability to ship larger quantities of raw bitumen from Alberta to Pacific Rim markets becomes a physical reality and economically feasible.


Although not currently a major stakeholder in the oil sands, it would not be surprising if India were to invest in the near future. The country is the fifth largest oil consumer in the world and relies on imports for 80% of its needs. Like China, India is competing for international energy assets in an effort to secure supplies of oil from politically stable sources. It was rumoured earlier this year that the Indian Government had asked Oil India and Oil and Natural Gas Corporation Limited (ONGC) to each make one international acquisition this year. It was reported that Oil India, a bidder for Gulfsands Petroleum Plc, had US$2.5 billion available for a combination of domestic and international investments or acquisitions. Bloomberg reported, in March, that ONGC had given serious consideration to deploying US$1 billion to acquire oil sands assets producing approximately 10,000 bpd. India’s Oil Minister has refused to confirm whether India was a bidder for a stake in the Mackay River and Dover Oil Sands projects led by AOSC or whether India is interested in one large acquisition or a series of smaller ones.

Europe and Scandinavia

Total E&P Canada Ltd. (Total) is the Canadian subsidiary of the French multinational and has recently restated its goal of producing hydrocarbons totalling as much as 250,000 bpd in Canada by 2020. Earlier this year the Total/Conoco Philips Joint Venture announced its intention to quadruple in-situ oil sands production on the Surmount lease from 27,000 to 110,000 bpd by 2015, and construction is now underway. Total's Joslyn North mining project, which is anticipated to produce 100,000 bpd of bitumen, is currently in the regulatory approval process. Its upgrader, with an ultimate capacity to handle 295,000 bpd of bitumen and to be located in the Industrial Heartland region, received regulatory approval in September 2010. Total also has a 20% interest in the 165,600 bpd Fort Hills oil sands project (led by Suncor Energy) and a 50% interest in the Northern Lights Project (in joint venture with Sinopec), both projects currently undergoing a timeline reconsideration for project development.

StatoilHydro, Norway's largest oil company, made its foray into the oil sands in 2007 when its subsidiary, Statoil Canada, bought North American Oil Sands Corp. for about $2.2 billion. Statoil's 10,000 bpd in-situ demonstration plant is under construction on its Leismer lease and application has been made to convert that plant to commercial and then expanded commercial production of 30,000 bpd. Steam injection is imminent and initial production is expected in 2011. Statoil has also submitted applications for seven other in-situ initiatives (each to produce 20,000-40,000 bpd) for anticipated total annual production of 200,000 bpd. In 2008, citing cost concerns, Statoil withdrew its application for a 250,000 bpd upgrader in the Industrial Heartland region.


Korea, also one of the largest importers of crude oil in the world, has been active in the purchase of oil and gas assets and in attempting to secure long-term supply. In December, Korean National Oil Corporation (KNOC) bought Harvest Energy Trust (whose assets included the BlackGold Oil Sands Project) for US $4.11 billion. In July 2010, KNOC contracted with a Korean construction firm to build the 10,000 bpd BlackGold Phase 1 in-situ project. KNOC subsequently filed for regulatory approval for a 20,000 bpd expansion of this project and has expressed an interest in future acquisitions of oil and gas assets in Alberta.


Japan has had interests in the oil sands for several decades. Japan Oil Sands Canada Limited (JACOS), 86% owned by Japan Petroleum Exploration Co., Ltd., began investing in the Alberta oil sands in 1978 and was one of the first companies to become involved with “in-situ” development. Currently, JACOS operates the Hangingstone project located near Fort McMurray and quietly and consistently produces 8-10,000 bpd of bitumen using SAGD technology. JACOS’ holdings in the Athabasca region encompass 46,000 hectares and are estimated to contain 1.7 billion barrels of bitumen.

Nippon Oil Exploration of Japan holds a 5% interest in the Syncrude project through its subsidiary company, Mocal Energy. In 2007, a Japanese company INPEX, acquired a 10% interest in the Joslyn Oil Sands Project, which is led by Total. The Joslyn Project is expected to produce bitumen by 2017. The Project is located 65 km northwest of Fort MacMurray in the Athabasca Oil Sands and covers 221 square kilometres. It is expected that this project will be developed in multiple phases and ultimately yield two billion barrels of bitumen over 30 years. Such projects are clearly for investors with a long-term investment horizon.

Japan has minimal domestic oil reserves and is the third largest net importer of crude oil in the world.


Although it has already attracted investors from the United States, Japan, Norway, France, South Korea, the Netherlands and Thailand, overseas investment in the oil sands is in its infancy. Pipeline projects, connecting the oil sands to the West Coast of North America and on to Asian markets, along with uncertain hydrocarbon supply from the OPEC consortium and many (perhaps even most) of the other major oil exporting nations, is likely to focus increasing investor attention in the Athabasca Oil Sands. CAPP predicts a very bright future for the oil sands, particularly in view of the apparent increased competitiveness for global oil assets. Newly available capital is allowing projects to overcome tight credit markets and concerns surrounding construction cost sensitivity. CAPP predicts that Canada could produce 3.5 million barrels of bitumen per day, by 2025. Doing so would require that bitumen production triple in the next 15 years. Much of the capital required to make this a reality will certainly come from non-Canadian sources.

The rationale supporting non-Canadian investment in the oil sands, while clearly entrepreneurial, is sometimes less than transparent. Do the investors, in an effort to ensure security of a hydrocarbon supply, simply want to take possession of raw bitumen, or a blend thereof, for their own domestic use, or to perhaps swap existing resources for some hydrocarbons that are more easily transported to their country? Are those entities acquiring oil sands interests so that they might access and exploit particular technology for use in their home country or for some other purpose? Perhaps in-bound investment is motivated by nothing more nefarious than a 'profit motive'! The longer term motives of investors may be as many and varied as the investors themselves and the more realistic explanations and motivations for investment may well be continuing to evolve.