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Shell, China sign deal to explore Canadian oil

By Shaun Polczer, Calgary Herald November 10, 2010

Zhou Jiping, vice chairman and president of Chinese oil giant PetroChina speaks at the company’s 2010 interim results announcement in Hong Kong on August 26, 2010. Photograph by: MIKE CLARKE, AFP/Getty Images

In yet another sign of growing Chinese interest in Canada’s energy resources, the Chinese national oil company and Royal Dutch Shell on Tuesday signed a deal that will see the companies partner up on oil and gas projects in Canada.

The China National Petroleum Company – the parent of PetroChina, one of the world’s largest publicly trade oil companies – reported that its president, Jiang Jiemin and Shell CEO Peter Voser signed a memorandum of agreement in Beijing on “integrated co-operation” of oil and gas projects in Canada and coal bed methane development in China.

No other details of the agreement were disclosed but speculation is that the companies would be looking to develop oilsands.

In Calgary, Shell spokesman Phil Vircoe declined to confirm the agreement or what it would entail, although Bloomberg reported that Li Lusha, a Beijing-based spokeswoman for Shell’s China operations, confirmed the accords in a separate telephone interview. Bloomberg also reported that a PetroChina spokesman in Hong Kong confirmed the CNPC-Shell deal without giving further details.

Shell Canada, which was taken private by Royal Dutch two years ago, is one of the country’s largest integrated oilsands producers and owns a controlling interest in the Athabasca Oil Sands Project which is currently expanding its Scotford upgrader to handle higher production.

Greg Stringham, vice-president of the Canadian Association of Petroleum Producers (CAPP), said Chinese interest in Canada’s oilpatch is high. This week he returned from Beijing where he was the keynote speaker at a full-day conference at the Beijing Petroleum University devoted exclusively to Canadian oil prospects.

“They talked not just about oil, but about gas as well,” he said. Although he wasn’t aware of the agreement between the two companies, “I think it’s an indication of strong interest (in Canada) and a good sign of a continuing and growing relationship in energy.”

Shell Canada wouldn’t be the only Western oil major to court Chinese investment in Alberta’s oilpatch, but it’s certainly one of the largest. Earlier this spring Chinese refining giant Sinopec won approval from the federal government to buy ConocoPhillips’ stake in Syncrude Canada for $4.65 billion.

In June Encana Corp. signed an MOU with CNPC to negotiate a potential joint venture to develop unconventional gas plays in British Columbia.

The Chinese are also big investors in Athabasca Oil Sands Corp. and MEG Energy, which are developing thermal oilsands projects in northeast Alberta. And in May, Penn West Energy entered into a deal with the China Investment Corp. worth $2.6 billion to develop oilsands assets in the Peace River region of Alberta.

On the flip side of the coin, Calgary-based Husky Energy is considering a spin out of its Chinese assets to develop a major natural gas find off China’s east coast.

In addition to investing overseas, Stringham said the Chinese are also interested in acquiring Western technology to help develop its own heavy oil and unconventional gas deposits.

China, the world’s fastest-growing major economy, may source one-third of its unconventional gas supply from coal seams by 2030, Wood Mackenzie Consultants Ltd. said in a report on Aug. 24.

Chinese energy demand will jump 75 per cent by 2035, accounting for more than a third of global demand growth, the International Energy Agency said in a report yesterday. PetroChina plans to increase co-operation with foreign energy companies to accelerate its global expansion, President Zhou Jiping said in August.

The two companies have already agreed to work together on energy projects in China and Australia. They signed a joint shale-gas assessment agreement for the Fushun-Yongchuan block in Sichuan last year. That was Shell’s second gas exploration venture in mainland China following a project at the Changbei gas field in Shaanxi province.

Shell and PetroChina also completed a $3.5 billion joint acquisition of Australia’s coal bed methane producer Arrow Energy Ltd. in August.

PetroChina plans to spend at least $60 billion in the next decade on overseas acquisitions, Jiang said in March.

With files from Bloomberg

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