ConocoPhillips Sells Canadian Oil Stake to China's Sinopec

Sinopec buys ConocoPhillips's share of Canadian oil fields
Sinopec buys ConocoPhillips's share of Canadian oil fields

In a heated auction on Monday, China's Sinopec Group agreed to pay $4.65 billion for ConocoPhillips's (COP) 9.03% stake in the Syncrude oil fields in Canada. The property was expected to fetch about $4 billion.

The sale follows the U.S. oil company's announcement last October that it was aggressively cutting back on spending and would sell off roughly $10 billion in assets over the next two years. The reason was to help pay down its large debt load, amassed primarily from its deal-making of the previous years.

From 2004 to 2008, ConocoPhillips invested in Lukoil, purchased Burlington Resources for $35 billion and entered an $8 billion joint venture in Australia. Unfortunately, the transactions increased the company's concentration in areas like refineries and natural gas, which have lagged recently.

A Canadian Gusher

The Syncrude joint venture operates in Northern Alberta and, over the past 30 years, has generated two billion barrels of oil. The Canadian Oil Sands Trust is the largest equity holder of Syncrude, with a 36.74% stake. Other stakeholders include Imperial Oil Resources (25%), Mocal Energy (5%), Murphy Oil (5%), Nexen Oil Sands Partnership (7.23%) and Suncor (12%).

The group has been aggressive with investing in the fields. By the end of the decade, Syncrude expects to generate more than 425,000 barrels per day. The reserves stand at about 4.9 billion barrels.

True, the Sinopec transaction will require regulatory approval from the Canadian governmental authorities. But it appears this should not be a problem as the company is purchasing a minority position.

China Makes Headway in Canada

China's oil giants have recently struck a variety of deals in Canada. For example, last September PetroChina (PTR) paid $1.7 billion for a 60% stake in the Athabasca Oil Sands Corp.'s MacKay River and Dover sands projects. Just last week the company launched an IPO and raised $1.32 billion. The company now trades on the Toronto Stock Exchange.

Then again, Canada has a stable government and a rich supply of oil. In fact, the country has the largest deposit of crude outside the Middle East.

No doubt, this is certainly attractive to China, which continues to grow at a rapid pace and will need increased amounts of oil. Already, the country has an auto market that's larger than the U.S. and imports more than half its oil.

So, paying top-dollar for oil properties seems reasonable -- and could perhaps ultimately be profitable if crude prices continue to increase for the long-haul. But this is likely a secondary consideration. Oil is a highly strategic asset for China and will definitely be a driving force for aggressive future deal-making.