In what may be the first major natural resources buy for a Chinese parastatal in North America, Sinopec is buying Canadian oil and gas explorer Daylight Energy Ltd. This could herald the arrival of the Chinese in the North American commodities market in a big way.
The second major slowdown in four years is now affecting energy stocks across the globe is also no surprise. Chinese buyers have been taking advantage of this, and where the US and Canada might once have put barriers to those buyers trying to purchase commodities companies outright, expediency currently makes that impossible.
Sinopec International Petroleum Exploration and Production Corp (SIPC), a subsidiary of China Petrochemical Corp, or Sinopec. The company agreed to purchase the majority of Daylight Energy, a company fallen on hard times, for $10,08 a share, almost 50% higher than currently valued.
China, however, has been making big moves to secure enough energy to keep its massive growth moving forward. All this talk of a Chinese slowdown doesn’t suggest a Chinese shutdown, and even 7% growth a year, sucks up a lot of dinosaur juice.
Sinopec has been active in North America before, but never at this level—politics wouldn’t allow it. The Investment Canada Act will probably be called in to review the purchase, but unlike BHP Billiton’s massive $39 billion bid for Potash Corp, it’s unlikely to put up many barriers for a minor player in the vast local natural gas market.
But the American and Canadian governments do have a choice and the question is whether deals like this make sense. The short answer is, of course they do. China needs resources, and North America, to keep the dream alive, depends on Chinese growth to keep the lights on. There is no meaningful strategic interest in denying the Chinese the spoils.