China's state-owned Sinopec plans to buy ConocoPhillips' stake in the huge Syncrude project in Canada's oil sands for $4.65 billion, marking one of the Asian country's largest investments ever in North America.
ConocoPhillips, the U.S.-based oil major, said on Monday it will sell its 9.03 percent interest in the Syncrude Canada Ltd project to China's top refiner in a deal set to close in the third quarter.
The acquisition is not the first investment by a Chinese company in Canada's oil sands but it is the largest.
It underlines a resurgence in interest in the vast but difficult-to-extract energy resource located in the Canadian province of Alberta. Investment in the oil sands has jumped since crude prices shot past $80 a barrel with the global economic recovery gaining traction.
The price is more than the market was expecting -- they were expecting about $4 billion, said Phil Skolnick, analyst with Genuity Capital Markets. It just shows that the Chinese are a different kind of buyer.
Indeed, the state companies can take a longer-term view of major investments in sectors such as energy, where they have outbid many domestic players in recently years, having no need to tap public markets for financing.
China has spent billions of dollars acquiring energy and mining assets around the world to help feed its fast-growing economy.
The deal differs from other Chinese oil sands acquisitions, which involved early-stage projects, FirstEnergy Capital Corp analyst Mike Dunn said. Syncrude, the largest project in the oil sands, has operated since 1978, and can now pump out 350,000 barrels a day, roughly 13 percent of Canada's overall oil output.
For ConocoPhillips, the deal is part of a two-year, $10 billion disposition program. When it first said it was putting the stake on the block last October, analysts pegged the value at $3.6 billion to $4 billion.
After Monday's announcement, ConocoPhillips shares climbed 64 cents, or 1 percent, to $55.96 on the New York Stock Exchange.
This deal goes a long way in helping them reach their $10 billion asset-sale goal. It's probably a bigger chunk than they had anticipated, said Allen Good, analyst with Morningstar.
The oil sands make up the largest crude deposit outside the Middle East, a resource attracting a Who's Who of the global oil industry willing to pay extra in development costs in exchange for a secure supply in a politically stable country.
Sinopec already has an oil sands stake. Last April, it bought an additional 10 percent interest in Total's planned Northern Lights project for an undisclosed sum. Also in 2009, PetroChina acquired a majority stake in leases held by Athabasca Oil Sands Corp for $1.9 billion.
Sinopec's latest deal requires approvals from governments in Canada and China. Canada recently subjected deals involving foreign state-owned enterprises to more regulatory scrutiny, but has not rejected any oil sands transactions.
Analysts said they do not see regulators blocking the deal, especially with Sinopec buying a minority stake in Syncrude.
We've already seen a number of oil sands transactions that have been applauded by both the Alberta and federal governments, and there's basically a green light given to foreign entities, Skolnick said.
Syncrude's largest owner, Canadian Oil Sands Trust, was seen as a prospective buyer of ConocoPhillips' Syncrude stake. Officials at the trust, which has a 37 percent interest, were not immediately available for comment.
Its trust units jumped 5 percent to C$32.22 on the Toronto Stock Exchange. The value of the deal showed the trust is likely worth more than the market had been affording it, although not the price Sinopec was paying, Skolnick said.
Syncrude's other owners are Imperial Oil Ltd, Suncor Energy Inc, Nexen Inc, Murphy Oil Corp and Nippon Oil Corp unit Mocal Energy.
(Additional reporting by Mike Erman in New York, Anna Driver in Houston, Louise Egan in Ottawa and Pav Jordan in Toronto; editing by Frank McGurty)