Analysis: How much Chinese investment is too much for Canada?

Thu Oct 13, 2011 4:47pm EDT
 
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By Scott Haggett

CALGARY, Alberta (Reuters) - China's big oil companies have steadily increased their stake in Canada's energy sector but have not yet tested the limits of a Canadian government that may recoil if they buy one of the nation's larger companies.

Since China National Offshore Oil Corp made its first tentative Canadian investment in 2005, paying C$122 million for a 16.7 percent share of the then-private oil sand developer MEG Energy Corp, China's international oil companies have spent or pledged more than C$11 billion ($11.2 billion) in Canada.

Most of that has gone for minority stakes in the Canadian oil sands, a vast resource that rivals the oilfields of Saudi Arabia in size, albeit with oil that is far more costly to wrest out of the ground.

But their purchases have become more ambitious in recent months. Seemingly no longer content to be a junior partner, the state-controlled companies are buying entire companies, with Monday's C$2.2 billion friendly offer for shale gas producer Daylight Energy Ltd the latest example of a deal.

However many experts think any bid for a Canadian crown jewel like Suncor Energy Inc, Canadian Natural Resources Ltd or Cenovus Energy Inc would severely test the friendly business ties between the two countries.

"I don't think they could be bought," said Randy Ollenberger, an analyst with BMO Capital Markets.

"I think the buyers and sellers would be reluctant to test that ... and yes, the Canadian government may in fact block those transactions, seeing those companies as being material and industry leaders."

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