Canada: Energy @ Gowlings: November 24, 2010


  • Gowlings And Solar Canada 2010
  • International Investment In Alberta's Oil Sands


Gowlings is participating in Solar Canada 2010, the annual conference of the CanSIA (Canadian Solar Industries Association) taking place on December 6th and 7th. Please join professionals from Gowlings at booth 812 to chat about current issues affecting the solar industry.


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.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
8 Nov 2016, Seminar, Ottawa, Canada

The prospect of an internal investigation raises many thorny issues. This presentation will canvass some of the potential triggering events, and discuss how to structure an investigation, retain forensic assistance and manage the inevitable ethical issues that will arise.

22 Nov 2016, Seminar, Ottawa, Canada

From the boardroom to the shop floor, effective organizations recognize the value of having a diverse workplace. This presentation will explore effective strategies to promote diversity, defeat bias and encourage a broader community outlook.

7 Dec 2016, Seminar, Ottawa, Canada

Staying local but going global presents its challenges. Gowling WLG lawyers offer an international roundtable on doing business in the U.K., France, Germany, China and Russia. This three-hour session will videoconference in lawyers from around the world to discuss business and intellectual property hurdles.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.