Athabasca Oil Corp. (ATH), the energy producer awaiting a C$1.23 billion ($1.13 billion) payment from PetroChina Co. for an oil-sands stake, can go after the Chinese company’s other Canadian investments if it doesn’t get paid.
Athabasca could sue for failure to make the payment and seek liquidation of PetroChina’s assets including a venture with Encana Corp. Athabasca also can seek a ruling from London arbitrators in the event of a dispute within the agreement, according to the contract that was filed with Canadian regulators.
Some investors are taking comfort in the Canadian company’s recourse options after reports indicated the payment is being renegotiated and may be delayed, sending its shares to the lowest in 14 months this week. Shareholders, lawyers and an adviser on the deal who asked not to be identified highlighted a lawsuit as a remedy for Athabasca.
“I would argue that, legally, everything seems to suggest that it’s entirely in Athabasca’s favor, that they would win in any kind of court proceedings,” said Chris Cox, an analyst at Raymond James Ltd. in Calgary. “The downside is they take time.”
Athabasca in April triggered the sale of its 40 percent stake in the Dover oil-sands project to PetroChina, which owns the rest. When the two partnered in 2010, they negotiated an option for either one to exercise the sale of Athabasca’s stake to Beijing-based PetroChina upon the project’s approval.
Athabasca needs the proceeds from the sale to fund drilling, including in the Duvernay shale where it’s seeking partners.
Concerns about the deal first arose when PetroChina didn’t make the payment by June 30, after Athabasca had said it expected the money by the end of the second quarter. Athabasca shares dipped to C$5.95 on July 29, the lowest since May 2013. The stock rose 0.9 percent to C$6.29 at 1:12 p.m. in Toronto.
The Financial Post reported on July 26 that PetroChina is trying to negotiate a lower price for the Dover stake, citing an unidentified person familiar with the talks. In a July 29 report, dealReporter said the payment is running into a protracted delay, citing two unidentified Chinese government sources.
Athabasca is confident the payment will come, netting the company the full C$1.23 billion, according to Matthew Taylor, a company spokesman.
“We’re working to close the transaction in accordance of the terms of the option agreement,” Taylor said on July 30, declining to comment on Athabasca’s recourse should the deal fall apart. “We can’t give our legal opinion externally.”
Athabasca reports second-quarter earnings on Aug. 6.
A sweeping Chinese government investigation is further casting a shadow over the oil-sands deal. Among PetroChina executives being probed are Li Zhiming, the former head of the Dover joint venture company Brion Energy Corp., and Margaret Jia, who until recently was China National Petroleum Corp.’s chief representative in Canada.
The investigations were reported by media outlets including Beijing-based Caixin magazine and the Wall Street Journal and confirmed to Bloomberg News by a person familiar with the matter. Neither executive has been charged with any crime, according to the July 28 Wall Street Journal report.
Chen Shudong, CNPC’s incoming director for Canada and head of the Dover joint venture, didn’t return phone and e-mail messages. Mao Zefeng, a PetroChina spokesman in Beijing, didn’t respond to two phone calls to his office. Jia declined in an e-mail to comment.
PetroChina assets in Canada include a Duvernay shale gas interest, for which the Chinese company paid Encana C$1.18 billion. PetroChina’s other projects include the MacKay River oil-sands development, previously a joint venture with Athabasca, as well as a partnership to build an oil-sands pipeline with TransCanada Corp. It also has a stake in a liquefied natural gas export plant along the Pacific Coast proposed by Royal Dutch Shell Plc.