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September 2, 2009

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PetroChina in Canadian deal

PETROCHINA Co has agreed to buy majority stakes in two Canadian oil sands projects for C$1.9 billion (US$1.7 billion) to secure long-term energy supply and help develop the world's largest untapped oil reserves.

PetroChina has signed an initial agreement to acquire a 60 percent stake in the proposed MacKay River and Dover projects in the Canadian province of Alberta from Athabasca Oil Sands Corp.

Unlike conventional oil projects, oil sands have higher extraction costs so they need higher oil prices to make projects viable.

"This is China's biggest gamble on the long-term viability of Canada's oil sands," said Gordon Kwan, head of energy research of Mirae Asset Securities in Hong Kong.

The Alberta oil sands region has the world's largest crude reserves outside the Middle East. PetroChina is the first major investor in the oil sands region since oil prices plunged last year, which delayed billions of dollars worth of projects.

PetroChina's domestic rivals CNOOC Ltd and Sinopec Corp had both previously taken stakes in oil sands projects in Alberta.

"Oil sands projects are very capital-intensive long-term investments and difficult to fully finance in the traditional equity market," said AOSC Chairman Bill Gallacher. "AOSC therefore decided to look for joint venture partners."

PetroChina will provide future financing for AOSC, and PetroChina's experience in its own heavy-oil projects in northeastern China could help unlock oil trapped in Alberta sands, the Canadian company said.

According to AOSC, the two projects contain an estimated 5 billion barrels of bitumen resource, but this cannot be booked as proven reserves under strict United States Securities and Exchange Commission classification standards.

Kwan said assuming a 50-percent recovery factor, PetroChina's purchase price equates to less than 70 US cents per barrel, in line with the recent valuations for other undeveloped oil sands properties.

PetroChina rose 0.47 percent to 12.86 yuan (US$1.88) in Shanghai and 1.05 percent to HK$8.65 (US$1.12) in Hong Kong.


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