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PetroChina nears finish line on Alberta oil sands project

Athabasca Oil is closer to obtaining funding for its Dover oil sands project, north of Fort McMurray, Alta.

Athabasca Oil Corp.

PetroChina Co. Ltd. is close to securing government approval for a northern Alberta oil sands project, though a dispute with a native community that dragged the process out for months shows how the industry faces increasingly tough hurdles for new developments.

The Alberta cabinet on Thursday gave the go-ahead for Brion Energy Corp.'s Dover oil sands project, a 250,000-barrel-a-day steam-driven bitumen project located near the 700-member Fort McKay First Nation. Brion is 60-per-cent owned by PetroChina; Calgary-based Athabasca Oil Corp. has the rest. The project still requires an approval from the province's environment department, a process that normally takes two to four weeks following the cabinet decision.

The partners had expected speedy approval, especially after the Alberta Energy Regulator gave a conditional nod to the project last summer. But Fort McKay disputed the decision, and was granted leave to appeal, arguing it should have a 20-kilometre buffer zone between the project and its lands, which are north of Fort McMurray, Alta. and surrounded by oil sands development. The two sides struck a deal this past month that included a compromise on buffer zones, though few other details were released.

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Final government approval will set off a 30-day period during which either company can trigger the sale of Athabasca's 40-per-cent stake to PetroChina for $1.3-billion. Athabasca and its investors have long anticipated proceeds from the Dover sale and have been frustrated by the lengthy delay, which pressured the company's shares. Athabasca's stock rose 1.29 per cent to $8.39 on Thursday, and is up 7 per cent since the accord was struck with Fort McKay.

The band's opposition to the Dover project had surprised some people in the energy industry, as businesses run by Fort McKay, including fuel supply and hauling, vehicle fleet maintenance and leasing companies, have profited from the rapid expansion of oil sands developments. The dispute also raised questions about future approvals in regions where native communities are far less used to energy development.

"What it does is just show the industry that it is all about relationship management," said Phil Skolnick, analyst at Canaccord Genuity in New York. "Is there a risk to projects going forward? Yeah, I think no doubt that's increased a little bit because of what Athabasca went through. But they were able in the end to come up with an agreement with the Fort McKay First Nations group."

Aboriginal relations issues have climbed to the top of the priority list for the oil industry, which is battling a perception in some communities that it glosses over concerns about First Nations land rights and environmental issues as it seeks to advance projects. Oil sands developments and pipelines, notably Enbridge Inc.'s contentious Northern Gateway proposal to the West Coast from Alberta, have been front and centre.

Athabasca, which borrowed money and cut capital spending as it waited for Dover approval, has been searching for partners to help develop its holdings in the gas-rich Duvernay shale region of Alberta and in its other steam-driven oil properties.

PetroChina bought 60 per cent of the Dover project as part of a $1.9-billion deal in 2010. It is anticipated that Athabasca will have its proceeds from the remaining 40 per cent by about the middle of the year.

"That should lead to a joint venture in the Duvernay because it's pretty difficult to get a JV partner when you have financing uncertainty, so that overhang gets removed," Mr. Skolnick said.

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For PetroChina, Dover would be its second wholly owned Canadian oil sands project. It did a similar deal with Athabasca for the smaller MacKay River project two years ago. The deals were signed before Ottawa imposed restrictions on bids for control of oil sands assets by foreign state-owned enterprises in late 2012.

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About the Author
Mergers and Acquisitions Reporter

Jeffrey Jones is a veteran journalist specializing in mergers, acquisitions and private equity for The Globe and Mail’s Report on Business. Before joining The Globe and Mail in 2013, he was a senior reporter for Reuters, writing news, features and analysis on energy deals, pipelines, politics and general topics. More


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