PetroChina Company Limited (NYSE: PTR) topped the Financial Times Global 500 as of the end of the second quarter with a market capitalization of USD367 billion. The Chinese state-owned enterprise (SOE) first passed ExxonMobil (NYSE: XOM) on May 22, 2009.

Its rise coincides with the emergence of China’s economy, which overtook Germany in January to become the world’s third-largest. China could surpass Japan, currently the world No. 2, within three to four years. Some economists forecast that the Middle Kingdom will overtake the US by 2030.

This rapid growth will only be possible if China can secure sufficient resources to support infrastructure improvements and the development of a Chinese middle class. The Middle Kingdom, its leaders focused on maintaining social order through managed economic growth, is deploying its vast excess currency reserves through SOEs such as PetroChina and sovereign wealth funds (SWF) such as China Investment Corp (CIC) to buy overseas commodity assets.

PetroChina International Investment Company Limited is paying CAD1.9 billion (USD1.7 billion) for a majority stake in two oil sands projects in Alberta, the latest in a series of overseas investments by China’s various state-run entities designed to secure access to resources.

PetroChina International Investment, a wholly-owned subsidiary of PetroChina Company, the publicly listed entity of state-owned China National Petroleum Corp (CNPC), will acquire a 60 percent stake in privately held Athabasca Oil Sands Corp’s Mackay River and Dover projects.

The projects, located in the middle of the Athabasca region of northeastern Alberta, contain an estimated 5 billion barrels of bitumen. Production at full capacity is projected to reach 300,000 to 500,000 barrels a day (bbl/d) at a total capital cost of CAD15 billion to CAD20 billion. The first phase of Mackay River is due to come on stream in 2014 with daily output of 35,000 bbl/d at a cost of about CAD1.1 billion. Athabasca estimates the two projects are viable at an oil price of USD50 to USD60 a barrel.

PetroChina’s Canadian venture follows France-based Total’s (France: FP, NYSE: TOT) deal to sell a 10 percent stake in the Northern Lights oil sands project to SinoCanada, a subsidiary of Sinopec (NYSE: SNP), also a Chinese SOE. SinoCanada now controls 50 percent of Northern Lights, an in-development project that could require capital costs as high as CAD10 billion to reach production of 100,000 barrels per day.

As the figures detailed above suggest, oil sands projects are capital-intensive, long-term investments. The global economic slowdown and the financial crisis have only exacerbated the difficulties of getting projects funded, forcing many players to sell out or seek partners. That PetroChina–one of the world’s largest energy companies, backed by the Chinese government–is involved means MacKay River and Dover will get off the ground.

Apart from its considerable financial heft, PetroChina also brings technical expertise. The SOE has heavy-oil projects underway in northeastern China, where it employs technologies including steam-assisted gravity drainage (SAGD). Athabasca Chairman Bill Gallacher noted in a statement announcing the deal that PetroChina’s “field developments, operational methods, heavy-oil experience and research facilities are world class, and as a partner they will bring these very valuable attributes to the MacKay River and Dover projects in Alberta.”

As for CIC, it made high-profile investments in US financials–before Lehman Brothers imploded–but kept most of its powder dry during the 2008-09 market meltdown. CIC reportedly held 87.4 percent of its overseas investments in cash or cash equivalents last year. According to Lou Jiwei, CIC’s chairman, the USD298 billion SWF is investing as much overseas each month this year as it did in all of 2008.

In July CIC bought a 17 percent stake in Teck Resources (TSX: TCK.B, NYSE: TCK), among the world’s leading producers of copper, metallurgical coal and zinc. Teck also has an interest in the Fort Hills oil sands project. The deal, like the PetroChina-Athabasca union, appears to be a win-win for both parties.

CIC wanted Teck because China is the world’s leading importer of iron ore and other commodities and the country must secure the inputs needed to support its growth. Teck had to bolster its balance sheet, and the prospect of stronger ties to the world’s largest commodities market was also attractive; Chinese imports of metallurgical coal could reach 20 million tons this year and could grow significantly in coming years.

China’s leadership will do everything possible to sustain the 8 percent rate of growth that’s necessary to support populations migrating from rural areas to urban centers. The government launched a USD587 billion stimulus plan in November 2008 and successfully boosted bank lending to USD1.1 trillion in new loans in the first six months of 2009, efforts that combined account for 45 percent of GDP. The amount of capital deployed via its SOEs and SWFs is relatively small, but its further indication that China will aggressively pursue its long-term interests and that Canada will benefit from these efforts.

Bubble Up

“It will not be too bad this year. Both China and America are addressing bubbles by creating more bubbles and we’re just taking advantage of that. So we can’t lose.” — China Investment Corp Chairman Lou Jiwei, speaking to reporters at a Washington, DC, conference sponsored by the Brookings Institution and the Chinese Economists 50 Forum.

Speaking Engagements

Roger Conrad is making the trip to the Great White North for The World MoneyShow Toronto, October 20-22 at the Metro Toronto Convention Centre.

Roger will, of course, discuss Canadian income trusts and high-yielding corporations as well as the utility universe. Click here to register and attend as his guest.

The Roundup

Oil and Gas

Crescent Point Energy (TSX: CPG, OTC: CSCTF) is buying Wave Energy, a privately hold oil and gas producer with access to original oil in place in Saskatchewan’s Lower Shaunavon resource play of more than 1 billion net barrels.

Wave shareholders will get 0.21 of a Crescent Point share for each Wave share, or about CAD7.28 a Wave share. Including the assumption by Crescent Point of about CAD58 million of net debt the deal’s value is about CAD665.3 million.

Crescent Point is also buying producing assets in southeast and southwest Saskatchewan for about CAD258.5 million from a seller it didn’t name but that’s likely Provident Energy Trust (TSX: PVE-U, NYSE: PVX). The assets produce about 3,750 barrels of oil equivalent a day (boe/d).

Crescent Point has boosted its planned 2009 capital spending by CAD100 million to CAD325 million to account for additional drilling and new facilities. The recently converted company now forecasts year-end production of 51,500 boe/d, a 16 percent increase from its previous estimate. Cash flow for 2009 is projected at about CAD645 million.

Crescent Point will partially fund these purchases via a bought-deal offering of 5.8 million shares at CAD34.50 each, for proceeds of about CAD200 million. Crescent Point Energy is a buy up to USD34.

Daylight Resources Trust (TSX: DAY-U, OTC: DAYYF) is acquiring Highpine Oil & Gas (TSX: HPX) for CAD530. Highpine shareholders will receive 0.85 of a Daylight trust unit or CAD7 in cash per share held.

Daylight management anticipates Highpine’s high netback/high cash flow light oil assets will boost cash flow immediately. The acquired company’s contribution brings Daylight’s total tax pools to more than CAD1.4 billion. These factors suggest Daylight will likely convert without cutting its distribution, preserving the good feelings of its original investor base with a high dividend. Daylight Resources Trust is a buy up to USD11.

Enerplus Resources (TSX: ERF-U, NYSE: ERF) is buying a 30 percent interest the Marcellus Shale assets of Chief Oil & Gas and Tug Hill for USD406 million and has entered a joint development agreement with Chief to continue operating the assets.

Chief and Tug Hill own approximately 552,000 gross acres in the Marcellus, primarily in Pennsylvania. Chief has drilled 31 Marcellus shale wells, 10 vertical and 21 horizontal. Enerplus entered a long-term agreement with Chief Gathering LLC, an affiliate of Chief Oil & Gas, for the gathering, dehydration, and compression of Enerplus’ share of production. Enerplus Resources is a buy up to USD25.

Electric Power

Great Lakes Hydro Income Fund (TSX: GLH-U, OTC: GLHIF) announced the closing of the transaction that will result in its name-change to Brookfield Renewable Power Fund.

The transaction, which includes the purchase of 15 hydroelectric stations and one soon-to-be-constructed wind power project from Brookfield Renewable Power, was approved by Great Lakes unitholders at an Aug. 19 special meeting.

Units of Brookfield Renewable Power Fund, formerly Great Lakes Hydro Income Fund, will begin trading at the market open on Sept. 2, 2009, under the Toronto Stock Exchange symbol BRC-U. Great Lakes Hydro Income Fund/Brookfield Renewable Power Fund is a buy up to USD17.

TransAlta Corp (TSX: TA, NYSE: TAC) extended the deadline for acceptance of its CAD4.55 per share offer for Canadian Hydro Developers (TSX: KHD, OTC: CHDVF) to Sept. 11, 2009.

Canadian Hydro’s board continues to recommend that shareholders reject the all-cash offer. TransAlta Corp is a hold; Canadian Hydro Developers is a buy below USD5.

Natural Resources

Cameco Corp (TSX: CCO, NYSE: CCJ) is raising approximately CAD500 via a new debt offering. The world’s largest publicly traded uranium miner will use the proceeds to retire existing debt and for general corporate purposes. Cameco is selling 5.67 percent senior unsecured debentures through a syndicate of underwriters led by RBC Capital Markets and Scotia Capital.

Standard & Poor’s maintained its BBB+ rating for Cameco with a stable outlook; in its analysis of the new offering S&P noted Cameco’s “strong position in the global uranium market, solid cost profile and moderate financial policies.” Cameco Corp is a buy up to USD30.

Energy Services

Cathedral Energy Services Income Trust (TSX: CET-U, OTC: CEUNF) announced a plan to convert to a corporation on a tax-deferred basis before Dec. 31, 2009. The trust is discontinuing its distribution following the August 2009 payment.

Following the effective date of the conversion, management “expects to pay quarterly dividends in the amount of CAD0.06 per share with the first dividend being for the fourth quarter of 2009 and payable in January 2010.” Cathedral Energy Services Income Trust is a buy up to USD5.

Food and Hospitality

Colabor Income Fund (TSX: CLB-U, OTC: COLAF) has completed its conversion into a corporation. Commencing January 2010, the company will pay a quarterly dividend of CAD0.2691 cents per share, the quarterly equivalent of Colabor’s current distribution of CAD0.0897 per unit.

Common shares of what is now Colabor Group (TSX: GCL, OTCL COLAF) began trading on the Toronto Stock Exchange on Friday, Aug. 28, 2009. Colabor Group is a buy up to USD12.

Transports

Aeroplan Group (TSX: AER, OTC: GAPFF) is issuing CAD150 million of 7.9 percent senior secured notes to an underwriting syndicate led by CIBC World Markets and TD Securities.

Dominion Bond Rating Service has assigned a BBB (Stable) rating to the issue, while S&P has rated it BBB-. Net proceeds from the offering will be used to pay down existing bank facilities and for general corporate purposes. Sell Aeroplan Group.