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A Chinese-backed investor group that has plowed hundreds of millions of dollars into insolvent oil and gas producers is making its first foray into Canada’s oil sands.

East River Oil and Gas Ltd. is snapping up bankrupt Connacher Oil and Gas Ltd. in a proposed transaction worth $113.5-million, bringing the junior oil-sands producer closer to the end of a court-supervised restructuring process that has dragged on for more than two years.

The deal received court approval last week but still requires government clearances in China as well as sign-off from Connacher’s first-lien bondholders, who are owed more than US$200-million, filings show.

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The acquisition would be the latest by an affiliate of Changchun Sinoenergy Corp., a Shanghai-listed compressed natural gas firm that has feasted on assets from debt-hobbled domestic producers and companies in receivership through the extended oil-price slump.

Buying Connacher would break new territory in a high-cost region dominated by large companies, while adding to a stable of Canadian investments that includes Long Run Exploration Ltd., New Star Energy Ltd. and West Lake Energy Corp., formerly known as Twin Butte Energy.

Changchun Sinoenergy’s foray comes as the Alberta Energy Regulator (AER) seeks broader powers to review corporate takeovers, particularly those involving high-liability assets and other infrastructure.

Connacher, which operates two steam-driven oil-sands projects, sought creditor protection in 2016 after skipping debt payments. In the first quarter, it reported a net loss of $57.2-million and production of 12,670 barrels a day.

In an interview, chief executive Merle Johnson stressed the buyout does not pose extraordinary risks. The deal is also structured as a purchase of shares, meaning it is not subject to closer scrutiny by the regulator, he said.

“I think those deals that have struggled are deals where the deal value is basically zero. That’s not the case here," he said.

“And those deals, the ones that have come under greater scrutiny, have been where the liability rating is quite high compared to the actual production, and that’s also not the case here. We’re not a conventional company with thousands of wells.”

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Changchun Sinoenergy’s Beijing-based chairman, Tianzhou Deng, declined to comment on the deal through a Calgary representative.

Alberta’s energy watchdog is taking a harder look at proposed asset transfers and has said it wants greater oversight of corporate takeovers after the sudden collapse earlier this year of Sequoia Resources Corp.

The Chinese-backed natural gas producer filed for bankruptcy in March, leaving behind hundreds of millions of dollars in unfunded environmental liabilities and other claims.

Sequoia took on thousands of distressed wells in a series of deals, even though it lacked the wherewithal to clean them up, according to the AER’s own gauge of the company’s financial health. Most were acquired in a corporate transaction with Perpetual Energy Inc. that is now the subject of a lawsuit, launched this month by Sequoia’s bankruptcy trustee on behalf of creditors, including the AER.

AER CEO Jim Ellis has acknowledged gaps in regulations as a result of the case but has yet to clarify exactly how it will close them.

The regulator says it now considers the compliance history and affiliations of directors, officers and shareholders when determining whether to approve asset transfers – part of wider efforts to stop bankrupt energy companies from walking away from cleanup obligations.

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“We know that we have to make sure that to the best of our ability we make sure that transfers, very risky transfers, don’t take place, while at the same time making sure that economic activity through mergers and acquisitions in this province can move forward,” he said last week.

With a file from Jeffrey Jones.

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