China to buy stake in Penn West Energy

China Investment Corp. (CIC) and Penn West Energy Trust have entered into an oil sands partnership worth $817 million, and an equity investment worth $435 million.  Under the joint venture, Penn West, which is CanadaÔÇÖs number two energy trust, will put up $1.8 billion worth of oil sands assets in exchange for a 55 per cent stake in the joint venture. CIC will then pay $817 million for a 45 per cent stake. About $312 million of the money┬áwill go to Penn West directly, after which CIC will cover $505 million worth of the Canadian companyÔÇÖs future expenses. CIC will gain five percent control over Penn West. The venture will see the development of 237,000 acres of oil sands properties in the Peace River area of northern Alberta. Alberta is estimated to hold 175 billion barrels of recoverable oil, second only to Saudi ArabiaÔÇÖs 264 billion barrels. The development will use thermal technology, where steam is pumped into the ground to liquefy the bitumen so it can flow to the surface. Until now, Calgary-based Penn West has been spending about $50 million a year on its oil sands operations, which produce about 2,700 barrels of oil per day. But following the agreement of the partnership with CIC, that amount will be doubled or even tripled. Penn West ended the first quarter of 2010 with production equivalent to about 165,000 barrels of oil per day, with crude accounting for 60 percent of the total. The companyÔÇÖs output averaged over 177,000 barrels per day last year. CIC said in 2009 that it had $110 billion for overseas investments and that it planned to focus on commodities companies and property to guard against rising inflation. Last July, the fund bought 17 percent of the mining company Teck Resources for $1.7 billion. In total, state-run Chinese companies spent a record $32 billion last year acquiring resources overseas after domestic oil demand rose rapidly. In December, PetroChina won approval from the Canadian government to buy a stake in two Alberta oil sands projects for C$1.9 billion. Last month, Sinopec Group agreed to pay $4.65 billion for a 9.03 percent stake in Canada's largest oil sands project, Syncrude Canada. Penn West is one of the largest conventional oil and natural gas producers in North America and the largest producer of light and medium oil in western Canada. The trust operates a significant portfolio of opportunities with a prominent position in light oil in Canada. It operates throughout the Western Canadian Sedimentary Basin on a land base encompassing approximately six million acres. Headquartered in Beijing, CIC was founded in September 2007, as a wholly state-owned company.