(Paragraphs 6-8 add comments from a Penn West shareholder and an
analyst. Adds share-price quote in last paragraph.)
Penn West Energy Trust (PWE) is partnering with a Chinese
state-owned company to develop its oil-sands assets in northern
Alberta, marking China's latest move into the oil-rich Canadian
province.
Penn West, one of North America's largest conventional oil and
natural gas producers, said it and a unit of China Investment Corp.
will form a joint venture to develop the assets, which are in the
Peace River area. Penn West will contribute assets worth about
C$1.8 billion (US$1.77 billion) for a 55% stake in the venture, and
will act as operator.
China Investment Corp., or CIC, will invest C$817 million for a
45% stake. Of the total, C$312 million will be payable on closing,
with the remaining C$505 million applied to Penn West's future
capital and operating expenses.
The assets include about 237,000 net acres of oil-sands leases
and current production of about 2,700 barrels of oil equivalent a
day. The potential of the project is "substantial," Penn West
said.
Penn West said the Chinese company's support will assist in
moving the project from the current resource-appraisal phase
through to commercial-scale development and production.
Penn West watchers said the Peace River assets, known as the
Seal oil-sands play, weren't being ascribed much value because the
company didn't have the resources to develop the assets. "We didn't
attribute a ton of value to it because they weren't spending tons
of money right now," said Joanne Hruska, portfolio manager at Aston
Hill Financial Inc. (AHF.V), an asset-management company that owns
Penn West shares.
The joint venture changes that equation, thanks to CIC's C$505
million capital-spending infusion, Hruska said. "We didn't see Penn
West spending anywhere near that," she said, adding that the cash
infusion from CIC means Penn West will be able to direct resources
to some of its other promising assets, such as assets held in the
cardium formation in central Alberta.
Leon Knight, analyst at Macquarie Research, said the agreement
will also allow Penn West to reduce debt and improve its balance
sheet. While the company's debt load wasn't a big concern, it was
higher than its peers and was preventing it from accelerating
development of assets, such as the Seal play, he said. At March 31,
Penn West's long-term debt was C$2.75 billion.
Under the terms of the deal, CIC has also agreed to subscribe
for about 23.5 million Penn West units, or about 5% of its
outstanding units, for gross proceeds of about C$435 million. The
units will be issued at C$18.48 each. Penn West is up 4.8% to
C$20.39 in Toronto.
CIC's investment is just the latest in a series of investments
that China's national energy firms have made in Alberta as China
moves to secure energy resources around the globe. The country is
now the world's biggest automobile market.
Last month, ConocoPhilips (COP) agreed to sell its stake in
Alberta's Syncrude oil-sands project to China Petroleum &
Chemical Corp., or Sinopec. That deal is worth US$4.65 billion.
Earlier this year, PetroChina Co. moved to buy a 60% working
interest in Athabasca Oil Sands Corp.'s (ATH.T) MacKay River and
Dover oil-sands projects for C$1.9 billion.
In New York Thursday, Penn West is up US$1.09, or 5.7%, to
US$20.14, on 432,00 shares.
-By Stuart Weinberg, Dow Jones Newswires: 416-306-2026
stuart.weinberg@dowjones.com
(Carolyn King in Toronto contributed to this article.)
