25 October 2016
Canada’s oil sands are the third largest oil resource in the world, with an estimated 169 billion barrels of recoverable resource. Photo: Bloomberg
Canada’s oil sands are the third largest oil resource in the world, with an estimated 169 billion barrels of recoverable resource. Photo: Bloomberg

Sunshine Oilsands: an energy firm worth watching

I’ve got to know the chairman of Sunshine Oilsands (02012.HK) — Sun Guoping.

Sun has been well-known in China’s investment world for his new energy business. Sunshine Oilsands is a Canada-listed energy firm engaging in oil sands exploration and development. It completed a second listing in Hong Kong in 2012.

How does one combine traditional energy and new energy? It’s all about the crude oil market and price.

In the past several years, oil price has continued falling. It touched a trough of US$38.24 per barrel on Aug. 24, the lowest in six and a half years. However, it has staged a staggering rebound while most investors were bearish on oil.

It posted a rally of 27.5 percent or over US$10 per barrel within three trading days that ended in Aug. 31. It finished the month with a rise of more than 4 percent, and even hit a six-week high at the close.

Oil prices are affected by various factors, such as supply and demand, financial market, economy, politics, global environment, etc.

Oil producers usually take a passive position. Private oil companies have little control over the stance of Organization of the Petroleum Exporting Countries (OPEC). Increasing market supply has weighed on oil prices.

Data shows that US oil production has started to fall back. However, it remains unclear whether global oil output would decrease.

Investors can wait for the right timing, but entrepreneurs can’t wait. In particular, private firms need to embrace market challenges. Oil sand is a naturally occurring mixture of sand, clay or other minerals, water and bitumen, which can be used by refineries to produce usable fuels such as gasoline and diesel.

Oil sands represent 66 percent of global oil reserves, and the world’s largest oil sands are in Canada. Canada’s oil sands represent the largest oil resource found in a stable political environment located in the western hemisphere and the third largest oil resource in the world, with an estimated 169 billion barrels of recoverable resource.

Canadian oil sands represent the largest single source of supply of oil imported into the United States.

Sunshine’s interim results show that it is a major holder of oil sands resources in Canada’s Athabasca region, which has 3.6 billion barrels of best-estimate contingent resources, 436 million barrels of proved plus probable reserves and 602 million barrels of proved plus probable plus possible reserves.

The company is now focusing on phase one of the project, which is expected to have an initial output of 10,000 barrels per day. It expects the first steam injection in September this year and the first oil production in December.

How could private companies beef up their competitiveness amid the traditional oil sands production? How could they survive from low oil prices?

Sunshine entered into a non-legally binding framework agreement for strategic cooperation with Nobao Renewable Energy Holdings Ltd., a Shanghai-based company controlled by Sun.

The focus of the cooperation will be on examining applications of ground source heat technologies to reduce the costs of oil sands production, reduce emissions and reduce pollution emissions into the environment.

Traditional energy firms have sought new technology to reduce costs.

Sunshine is not required to make a capital investment. Nobao will be responsible for all costs associated with the installation and operation of high temperature heat pump unit technologies and equipment for the purpose of examining potential opportunities with Sunshine.

The combination of new energy technology and traditional energy will unleash more value, and the participation of private entrepreneurs is critical.

Currently, China’s SOE reform encourages greater involvement of private firms, and the addition of new technology and concepts are set to create more market value.

Chinese energy companies are facing huge challenges. They should adopt new technology.

China’s private firms have demonstrated great vitality in that process. Generating growth and efficient operation are both key to making a successful business.

This article appeared in the Hong Kong Economic Journal on Sept. 7.

Translation by Julie Zhu

[Chinese version中文版]

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Senior investment banker

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