Resource World Magazine

24 www.resourceworld.com a u g u s t / s e p t e m b e r 2 0 1 5 iNvESTmENTS W hen it comes to sourcing oil and gas, every major power in the world is trying to obtain a secure supply. It's natural for Canada, a country rich in reserves, to do business with leading energy consumers like the US and China which import petroleum products. China is a major player in terms of con- sumption. Oil, because of its importance and strategic nature, has always been a gov- ernment related business there. In China, traditional oil and gas companies have been dominated by the three major SOEs (state-owned enterprises): CNOOC (China National Offshore Oil Corp.), CNPC (China National Petroleum Corp.), and Sinopec. Canada is well positioned in its business relationship with China. Because Canada has more energy than it needs the business relationship can benefit Canadian compa- nies and the Canadian economy without jeopardizing Canada's own strategic posi- tion and energy security. But, except for the acquisition of Daylight Energy and the oil-sands-rich Nexen a few years ago, by the major Chinese SOEs, it seems there are not a lot of big business deals going on. It is rare that a Chinese group gets approval to invest in the Canadian market. Though there is much interest and many discus- sions are under way, not many transactions actually occur. anTi-cOrrupTiOn push by chairMan xi reshaping chinese Oil & gas inDusTry Since Chairman Xi Jinping took over two year ago, one of his objectives was to clean up corruption which included the oil and gas industry. Many top executives have been arrested. Former security chief, Zhou Yongkang was arrested, convicted of cor- ruption charges and expelled from the Communist Party. He had risen to power with his involvement in the oil and gas industry. The group of related people is called the "Oil and Gas Party". That group included the Chairman of CNPC, Jiang Jiemin, who was also arrested on corrup- tion charges. This collapse, in the reputation and credibility of the oil and gas giants, has paved the way for private enterprises and other relatively small industrial groups to gain market share in the energy sector. The once powerful SOEs are not so aggressive anymore; they have been restrained and are more conservative in their business dealings. In August 2014, a subsidiary of Guanghui Energy Co. Ltd. became the first private enterprise licensed to import oil into China. This was the signal for the Party to redistribute the power of the three giants into other private industrial groups and to create more jobs. They have been given the green light to look abroad, to source LNG supplies, and to look at pro- ducing assets with a strong reserve base. In the meantime, other smaller energy players are gathering steam in their own overseas strategy. Geojade Petroleum, a Shenzhen-listed energy company, has been active in acquiring oil and gas assets over- seas in places like Kazakhstan. Yanchang Petroleum, by no means a small player has made its move into Canada by taking over Novus Energy back in Jan 2014 for $320 million, a sum that any junior would happily accept when producing just 4,000 boe/day. There are also private companies in Alberta being bought outright by Chinese players. China Oil and Gas Group Ltd., a HK-listed energy group bought Calgary- based Baccalieu Energy in June last year. The latter has a Cardium resource play in west-central Alberta, producing 4,244 boe/day where 2/3 of the content is oil and liquids. That seems a good size for the Chinese investors – before it gets too big. Since then, it seems like the energy sec- tor has gone into quiet mode in terms of Chinese transactions. However, the appe- tite of Chinese players has not abated; it is just taking different forms. Other junior Canadian companies have benefited from a capital injection from high net worth indi- viduals and business entities. Anterra energy [AE.A-TSXV] was first in welcoming a HK group, LandOcean Petroleum Corp., in investing $7 million in April 2013 and then another $7 mil- lion investment from another Chinese group called Huisheng Group Co. This has resulted in Anterra issuing a huge amount of shares. Now the company is trading at less than one cent with 500 million shares outstanding. It is likely the company will end up being acquired by the LandOcean group. sahara energy [SAH-TSXV] was saved by the HK group JF Investments (basically Hubei Guochuang Hi-Tech Material Co. Ltd.) by injecting $16.2 million for a take- over. The company is drilling 11 new wells but it is unclear what the next step will be as very limited news releases are being published. Caiterra energy [CTI-TSXV] is another group that benefits from Chinese money. The founder of Sunshine Oilsands, Songning Shen, left that company to become CEO of Caiterra. He hopes to make discoveries and grow their asset base in Faust, Amadou and Lac La Biche, Alberta. The company's major shareholders are from China, and with the connections of Songning Shen, there will be no surprise as to from where Caiterra's future funding Chinese investment in Canadian oil and gas Past, PResent and FUtURe by Gilbert Chan, President NAI500.com

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