China's oil sands bet goes sour in Canada
After investing billions in North America, Chinese firms are licking their wounds as prices fall and production targets are missed
China's US$37 billion bet on Canadian energy producers, from Sunshine Oilsands to Penn West Petroleum, is producing disappointing results amid sinking resource prices and operational breakdowns.
Penn West and Sunshine, partly owned by China Investment Corp, the nation's sovereign wealth fund, have tumbled 17 per cent and 48 per cent respectively this year. Syncrude Canada, whose owners include CNOOC and China Petrochemical Corp, cut its production target three times; while declining natural gas prices have triggered a review of Sinopec Daylight Energy's assets.
The talk around the table is that the Chinese were not informed investors
"The talk around the table is that the Chinese were not informed investors," said Sam La Bell, a Toronto-based analyst at Veritas Investment Research. "They had a long-term view that oil was going up and they had a mandate to go buy oil assets. They weren't necessarily being selective."
Chinese investments in Canada's energy sector have cooled this year to less than US$1 billion, after a record US$19.3 billion in 2012, including CNOOC's US$15.1 billion acquisition of Nexen.
China has invested about US$37 billion in the industry since the beginning of 2008.
The slowdown in acquisitions and lower returns come after Prime Minister Stephen Harper last year imposed limits on oil-sands purchases by state-owned enterprises.
Falling fossil fuel prices, delays in building pipelines for exporting oil, and the time and money to understand how to operate in the world's third-largest oil reserves have led to a difficult year for Chinese investors, said Goldy Hyder, president of Hill+Knowlton Strategies Canada which advised CNOOC during its purchase of Nexen.