Kuwait Petroleum investing in Canada

Kuwait: Petroleum Corp is set to invest as much as $4 billion in a joint-venture project in Canada’s heavy bitumen oil sands properties.

Published reports in The Globe and Mail newspaper in Toronto on Friday say the company has already signed a memorandum of understanding with Athabaska Oil Sands Corporation to develop the project and the final deal will be inked in October.

Kuwait’s Ambassador to Canada, Ali Al Sammak, told the newspaper senior Kuwait Petroleum Corp officials signed a initial agreement in August.

“It’s a plus-or-minus $4 billion deal and in October they’ll be coming back to follow up what has been signed,” Al Sammak told the newspaper. “So we’re doing very good — this proves that we’re good close friends.”

The report says Kuwait Petroleum is seeking to diversify its operations beyond the Middle East and to improve its access to oil sand extraction technology, which could be used in its own heavy oil fields.

The proposed investment highlights the rising interest from state-controlled enterprises in the Middle East and Asia in capturing a piece of the oil sands boom — and the political challenge facing the Canadian government in deciding how to deal with them.

If the deal is completed, Kuwait Petroleum would join a growing list of state-owned oil companies targeting Canadian oil and natural gas assets. Two months ago, CNOOC offered $15 billion offer for Nexen, with Malaysia’s Petronas offering $6 billion for Progress Energy Resources Corp., which was approved by shareholders this week.

Athabasca signalled last month in a conference call with financial analysts that it was in the final stages of negotiating a joint venture with an unidentified investor.

An Athabasca spokeswoman said there is “no news yet” about a potential joint venture and said the company’s CEO was unavailable to comment.

It’s unclear whether a deal between Kuwait and Athabasca would require approval from Canada’s federal government — it would depend on how it is structured.

Foreign acquirers are targeting Canada because of its huge oil and gas reserves and relatively open door to foreign investment. Low valuations in the energy sector are also burnishing the appeal of prospective investments.

Some of these potential acquirers are being actively courted by Calgary companies such as Athabasca because they lack the capital to finance expensive oil sands projects.

The Canadian Association of Petroleum Producers expects it will cost energy companies $23 billion in 2012 to produce oil from the tar sands. The cost of producing expected increases in oil sands output could add up to more than $100 billion by 2020.

— Compiled from agencies