Chinese probe into PetroChina’s Canadian operations deepens as fourth executive under investigation
Claudia Cattaneo | July 18, 2014 |
Kevin Lee/Bloomberg NewsSome see the high-profile investigation as a signal that PetroChina wants to get to the bottom of activities in Canada before honouring its payment to Athabasca Oil, and that the terms of the contract with Athabasca are not strict enough.
CALGARY • A corruption probe in China is reaching deeper into PetroChina’s operations in Canada’s oil industry, with four high-ranking company officials involved in oil sands deals now believed to be under investigation.
Chinese arrest of former PetroChina Canadian chief casts shadow over Athabasca Oil projects
Zhiming Li, the PetroChina executive who until recently was responsible for the Chinese company’s operations in Canada, has been arrested in China, according to a report from Beijing
Reports in China link Margaret Jia, until recently the general manager of CNPC International (Canada) in Calgary, to the investigation, which focuses on the Chinese oil giant’s purchase of oil sands leases at what are believed to be inflated prices.
Ms. Jia’s whereabouts are unknown. One report in China’s Want China Times says she has been arrested.
Ms. Jia, whose Chinese name is Xiaoxia Jia , is the sister-in-law of Yongkang Zhou, China’s retired national security chief who is the highest-ranking casualty of President Xi Jinping’s campaign against corruption and a main focus of the probe.
His whereabouts are also unknown and family members are believed to be with him, according to the South China Morning Post.
The probe initially targeted PetroChina, but has since spread to other oil companies and is expected to slow down decision-making.
The three other Chinese executives with connections to Canada who are under investigation are: Zhiming Li, the head of subsidiary Brion Energy Corp., who wasarrested as he got off the plane in Beijing last month; Yiwu Song, the deputy-manager of overseas exploration and development at China National Petroleum Corp. who was taken away last week; and Qiliang Bo, the former chief of PetroChina’s international business, who is also being questioned, according to Caixin, a Beijing-based financial news organization.
The three executives had frequent dealings with Athabasca Oil Corp., the Calgary-based oil company that partnered with PetroChina in 2010 in a $5-billion joint venture to develop the MacKay River and Dover oil sands projects using steam-assisted gravity drainage technology.
Mr. Bo was the most senior and was closely aligned with Mr. Li, who was based in Calgary for four years and was unexpectedly recalled to China. Mr. Song was in Calgary in the mid-2000s and negotiated some of the company’s early oil and gas deals.
Ben TsuiAccording to a July 16 report in Caixin, a Beijing-based financial media news organization, Mr. Li “was taken in for questioning … directly at the airport” as he returned to China last month from Canada.
Athabasca is awaiting a $1.23-billion payment from PetroChina after it exercised an option to sell its remaining 40% of the Dover project to the Chinese company. It was part of a complex put/call option agreement that Athabasca president and CEO Sveinung Svarte once described as a way out in case the two companies didn’t get along or had different priorities.
The mid-sized company needs the money to pursue its other plays in Canada for which it is seeking partners.
Athabasca investors are nervous that PetroChina will not honour the payment, which was expected by the end of June, or that it will try to re-negotiate it. The stock has weakened since then, but recovered some lost ground to close at $6.96 in Toronto Friday.
There is no fixed date for PetroChina to hand over the case, but Athabasca has been telling investors that the payment is imminent.
Others see the high-profile investigation as a signal that PetroChina wants to get to the bottom of activities in Canada before honouring the payment, and that the terms of the contract with Athabasca are not strict enough.
While the state-controlled company’s specific concerns about the Canadian activities are not known, the Chinese have expressed disappointment with the high prices paid for Canadian assets and about encountering difficulties in turning the assets into production. They seem more focused on cutting costs than on expanding.
Since taking over the MacKay River project from Athabasca, PetroChina has also faced huge cost overruns in developing production facilities, according to industry sources.
PetroChina has been criticized in China for buying oil sands projects that are an early development stage rather than properties already in production.
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