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China tries oil sands

Globe and Mail Update

China made its first tiny foray into Canada's oil sands industry Tuesday as CNOOC Ltd. bought a small stake in privately held MEG Energy Corp. for $150-million.

CNOOC, China's largest offshore oil and gas producer, said it has acquired 13,636,364 common shares of MEG, a 16.69 per cent stake.

Calgary-based MEG, a little-known start-up backed by private capital, owns a 100-per-cent stake in oil sands leases that hold an estimated four-billion barrels of bitumen, with total recoverable reserves of about 2-billion barrels, the Chinese company said.

MEG has plans to build a pilot project using steam-assisted technology to melt the tar-like bitumen underground before pumping the heavy oil to the surface.

“I am excited with our low-cost entry into oil sands, gaining a footstep in this potential area,” CNOOC chief financial officer Yang Hua said in a statement. “Lower operating costs and higher recoveries resulting from recent advances in technologies have made many similar projects economically viable.”

China's economy has been growing rapidly, and the country's three state-controlled major oil companies have been trying to buy global assets to meet soaring oil needs. They have kept a close eye on the heated level of activity in the Alberta oil sands.

Canada's largest oil pipeline company, Enbridge Inc., is also expecting to sign a preliminary deal with one of the Chinese oil and gas companies to anchor a new $2.5-billion pipeline to take Alberta crude to the West Coast.

Fu Chengyu, chairman and chief executive of the Chinese company, said Tuesday's announced investment fits the company's long-term growth strategy but also gives it access to advanced oil-sands extraction technology that can be used on specialized energy projects back home in China.

“These skills may help facilitate the exploitation of oil sand and shale in China, where large reserves of oil sand and shale were found in recent years,” he said.

CNOOC Ltd. is publicly traded on the New York and Hong Kong stock exchanges and is China's largest producer of offshore crude oil and natural gas. It is also one of the largest independent oil and gas exploration and production companies in the world.

The company and its subsidiaries operate in offshore oil and natural gas exploration, development, production and sales, with major oil production off the coasts of China and Indonesia and assets in Australia.

CNOOC shares fell 59 cents or 1.1 per cent to $54.25 in New York.

With files from wire services.

© The Globe and Mail

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