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PetroChina Canada Ltd., a subsidiary of the prominent Chinese state-owned energy firm, faces significant challenges in its pursuit of full ownership of the Grand Rapids Pipeline system in Alberta. This 460-kilometer pipeline runs from the oilsands region in northeastern Alberta to the Edmonton area and is co-owned by PetroChina and Calgary-based South Bow Corp.
The complications in this acquisition emerged when PetroChina attempted to exercise its option to purchase South Bow’s interest in the pipeline. An Alberta Court of King’s Bench ruling indicated that this option is subject to a strict 30-day deadline, which has been difficult to meet due to necessary government approvals.
Government approvals required for acquisition
Justice Douglas Mah, who presided over the case, highlighted the necessity of securing two essential governmental authorizations before the acquisition can go forward. The first requirement involves compliance with the Competition Act, necessitating a review due to the size of the transaction. The second authorization pertains to the Investment Canada Act, which requires a net benefit review since PetroChina is a state-owned enterprise from China.
These regulatory processes are not only lengthy but also critical for any foreign investment in Canadian resources. Justice Mah remarked that both authorizations could lead to significant delays, impacting PetroChina’s acquisition timeline.
Dispute over option exercise
On November 21, PetroChina officially notified South Bow of its intent to execute the buyout option, including a draft purchase and sale agreement. South Bow, however, rejected this request, citing the lack of required governmental authorizations as grounds for non-compliance with the agreement. Consequently, the deadline for exercising the option shifted to December 24, further complicating matters as the necessary approvals were unlikely to be obtained by that date.
In response, PetroChina turned to the dispute resolution mechanism outlined in their agreement with South Bow. They sought a court injunction to prevent the expiration of the option period while pursuing arbitration to resolve the disagreement regarding the acquisition.
Court’s decision on the injunction request
Justice Mah denied PetroChina’s request for an injunction, expressing doubts about the likelihood of irreparable harm without it. He argued that the asserted harm—the loss of the option—could be remedied by the arbitration tribunal, which would have the authority to restore the situation should PetroChina prevail in arbitration.
Justice Mah underscored that if the arbitration tribunal could rectify the situation, then it could not be classified as irreparable harm. South Bow opposed this outcome but acknowledged that the arbitration tribunal held jurisdiction over the necessary decisions regarding the matter.
Background on the Grand Rapids Pipeline
The Grand Rapids Pipeline was originally developed through a partnership established in 2012 between PetroChina and TransCanada Corp., now known as TC Energy Corp. The pipeline has been operational since 2017, with construction costs estimated at approximately $3 billion. Despite the ongoing legal challenges, both companies remain committed to finding resolutions and exploring future options for the pipeline.
At this point, neither PetroChina Canada nor South Bow Corp. has publicly commented on the recent court rulings or their implications. The outcome of this legal dispute remains uncertain, shedding light on the intricate regulatory landscape governing foreign investments in Canada’s energy sector.