Hi Jay,
I was wondering how long this move would take. I'm glad I hung on to my HSE. It was my #1 bet for how China would get into the oil sands. Now the land plays could be interesting. CLL.TO, UTS.TO may be in play now, in addition to possibly CWPC.OB. I plan to nibble...
David
China in talks to buy Calgary oil giant
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By JACQUIE McNISH and PATRICK BRETHOUR
Friday, November 26, 2004
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The Chinese government is in discussions to acquire Calgary-based oil and gas giant Husky Energy Inc. from Hong Kong billionaire Li Ka-shing, in the emerging Asian power's latest move to deepen its economic ties with resource-rich countries such as Canada.
Sources familiar with the talks said representatives from the Li family and China entered negotiations for what would be a multibillion-dollar takeover several weeks ago in Beijing and Hong Kong.
China is understood to be seeking to acquire full control of Husky through one of its state-owned energy companies, but it was unclear which agency might make the bid. State-controlled PetroChina Co. Ltd. discussed a possible acquisition of Husky with the Li family two years ago, but the talks foundered on price.
Husky's stock has risen sharply in recent weeks on heavy trading amid takeover rumours and a continuing rally in energy shares. The company's shares closed yesterday on the Toronto Stock Exchange at $33.37, up 25 cents, giving Husky an indicated takeover price of more than $14-billion if all its shares are acquired.
The Li family controls about 71 per cent of Husky's shares through personal holdings and their Hong Kong company, Hutchison Whampoa Ltd. A spokeswoman for Hutchison was unavailable yesterday; a spokesman for Husky declined to comment.
China has embarked on a global hunt to secure resources for its booming economy. Chinese state firms are already active in Sudan and Peru, and are scouting investment opportunities in other countries, including Ecuador, Chile, Australia and Venezuela.
Canada's oil sands have been scrutinized as well. This summer, a delegation of Chinese executives and engineers visited oil-sands firms, including Husky. Alberta Premier Ralph Klein said last month that he understood that the delegation was reviewing possible investments with Beijing.
China, an oil exporter until 1993, is an increasingly important consumer, with some projections pointing to a doubling of imports by the end of the decade. China's growing thirst for oil has helped propel energy prices this year.
For Canadians from Ontario to Vancouver Island, Husky's most familiar face is its 550 Husky and Mohawk gas stations. But the company's operations run from China and Indonesia to Western Canada to offshore oil production in Atlantic Canada. The company also has ambitions in Alberta's oil sands, with plans to begin production from its Tucker Lake project in the third quarter of next year, with a second, larger operation starting up later in the decade, if regulatory approvals are granted.
China is also in discussions to acquire Toronto mining giant Noranda Inc. through its state-owned mining company China Minmetals Corp. People familiar with the Noranda and Husky negotiations said they expect the talks will be prolonged because they involve several layers of Chinese officials who are very cautious.
"China is making its first major foray in the West and they are being extremely careful in their negotiations. They want to generate the impression that they are getting the best deal possible," said one person familiar with the Noranda discussions.
Although the Noranda bid triggered concern in Ottawa about losing domestic control of the resource company, sources close to the Husky talks said they did not anticipate controversy because Mr. Li has owned the Calgary company since 1989.
"This company is already foreign-owned, it is not a Canadian trophy asset going overseas," one said.
Husky has held negotiations with a series of suitors such as PetroChina and France's Total SA in the past three years. Those potential bidders walked away because they did not share the Li family's aggressive valuations of the company's oil and gas assets.
Last month, Canning Fok, Husky's managing director, said the company had been approached but the offers were not rich enough.
A major stumbling block in previous takeover discussions has been the value the Li family has placed on Husky's planned White Rose oil megaproject off the coast of Newfoundland. Husky has a 72-per-cent interest in the project and until recently bidders were reluctant to attach much value to it because its oil reserves were still being evaluated.
As Husky moves closer to starting production, currently slated for late 2005 or early 2006, it has firmed its estimates for the size of the reserves. Previously, the company has said that White Rose contains 165 million barrels of probable reserves, essentially a less certain estimate of the amount of oil that can be eventually extracted.
But Husky said yesterday that 20 million barrels have, in the third quarter, been moved to the "proved" category, the most reliable estimate. Company spokesman Don Campbell said yesterday that Husky could add an additional 15 million barrels to the proved category before production begins.
Wilf Gobert, an analyst and vice-chairman at Peters & Co. Ltd., said the proven reserves are "a vindication" for Husky in the face of skepticism over the project.
Mr. Gobert said he was not aware of any new offer for Husky, but that previous suitors failed to strike an agreement on price. Total's attempt in the fall of 2001 withered after the French company floated an offer of $24 a share, while Husky held out for $27.
Sources close to the Husky talks said the improved reserves outlook at White Rose has brought Chinese negotiators closer to the price the Li family is seeking. As well, China has the added advantage of being able to offer Mr. Li the opportunity to co-invest in future projects.
© The Globe and Mail
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