Sunshine Oilsands Favors a Venture With Sinopec to Tap Oil Sands

Sunshine Oilsands Ltd. held talks with cornerstone investor China Petrochemical Corp., the nation’s biggest refiner, to jointly develop the Canadian company’s oil sands reserves.

The companies discussed “every aspect” of forming a joint venture to accelerate exploration and production of Sunshine’s estimated 71 billion barrels of oil sands reserves, Chief Executive Officer John Zahary said today in an interview in Hong Kong. He said they may establish a plan for a joint venture within a year.

The Calgary-based oil sands explorer raised HK$4.5 billion ($580 million) in a Hong Kong initial public offering in March, attracting cornerstone investors that include China’s sovereign wealth fund China Investment Corp., China Life Insurance Co., and China Petrochemical, also known as Sinopec Group.

“We need to sell our oil and they need to buy oil,” Zahary said. “We need to hire people and they have many skilled people, and we need to build infrastructure and they have a very capable engineering and construction business.”

Sunshine Oilsands will not begin commercial oil production until next year. It plans to produce 6,000 barrels a day at three project areas in 2013, aiming to increase production to 200,000 barrels a day.

Open to All Options

“We are totally open to all options in shareholding structure in the joint venture” including a minority stake, Zahary said.

Sunshine Oilsands and a Sinopec Group Unit, Sinopec International Exploration and Production Corp., signed an agreement in January to examine joint-venture opportunities in Canada.

Lv Dapeng, Sinopec Group’s Beijing-based spokesman, did not answer two calls to his office seeking comment.

“From a strategic point of view, Sinopec would love to build-up its upstream asset portfolio in Canada through forming partnerships,”said Simon Powell, the Hong Kong-based head of Asian oil and gas research at CLSA Ltd.

Sinopec bought Calgary-based Daylight Energy Ltd. for $2.1 billion in November. In 2010, it bought a stake in Alberta’s Syncrude Canada Ltd. for $4.65 billion.

Canadian oil sands production is expected to more than double to 3.7 million barrels a day by 2025, according to the Canadian Association of Petroleum Producers.

Another Chinese oil major, China National Petroleum Corp., holds assets next to Sunshine Oilsands’ fields. Zahary said Sunshine hasn’t formally talked with CNPC as the “synergy” is not there between the two companies.

Cnooc Ltd., China’s largest offshore oil producer, last month bid $15.1 billion for Calgary-based Nexen Inc., a deal being reviewed by the Canadian and U.S. governments amid scrutiny of Chinese investments in North America.

Zahary said he sees a 98 percent chance that Cnooc-Nexen would be approved, citing Canada’s relatively open attitude to foreign investment.

He said he didn’t expect Sinopec Group to encounter any regulatory problem if it decided to invest in the joint venture.

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