UPDATE 2-Penn West, China fund to develop oil sands project

* Penn West sells 45 pct of oil sands properties

* CIC to invest C$817 mln for interest

* CIC also to buy 23.5 mln Penn West units for C$435 mln

* Penn West units rise 4.3 pct
(Adds details and comments, updates unit price. In U.S.
dollars unless noted)

By Scott Haggett

CALGARY, Alberta, May 13 (BestGrowthStock) – Penn West Energy Trust
(PWT_u.TO: ) will sell a 45 percent stake in a planned oil sands
project to China Investment Corp (Read more about U.S. companies investment into China) for C$817 million ($805
million), the latest in a series of Canadian companies turning
to China for cash to develop the massive resource.

Canada’s No. 2 energy trust, said on Thursday it will
contribute oil sands properties near Peace River, Alberta,
valued at C$1.8 billion, into a partnership, while China
Investment will provide C$312 million in up-front cash and then
pay C$505 million in development costs for the project.

CIC will also take a 5 percent stake in Penn West, agreeing
to acquire 23.5 million units at C$18.18 each, raising C$435
million for the trust.

The agreement is the latest Chinese foray into Canada’s oil
sands, the largest oil reserves outside the Middle East, as the
world’s third largest economy looks to lock up energy sources
to power its booming growth.

Just last month, Sinopec Group (600028.SS: ) agreed to pay
$4.65 billion for a 9.03 percent stake in Canada’s largest oil
sands project, Syncrude Canada Ltd.

For Penn West, the deal gives it the financial heft to build
an oil sands project that it wouldn’t otherwise have developed.

“As an income trust, there’s no way, when you pay out half
you cash to investors, that you could get that thing up and
running,” said Jason Fleury, a spokesman for Penn West. “We
viewed these assets as having huge potential but had great
capital requirements.”

Penn West’s oil sands asset range over 237,000 acres
(96,000 hectares). The company did not say how much bitumen, a
tarry form of oil, the properties contain, saying only that the
resource holds significant resources.

“They were looking for options for their oil sands
properties but didn’t have any immediate development plans,”
said Kyle Preston, an analyst with Canaccord Genuity. “But I
don’t think they had the capital or capacity to focus on it
themselves.”

Preston added: “Overall this is a brilliant transaction.
They get a ton of cash up front and get to move forward with
development.”

The properties are currently producing 2,700 barrels of oil
equivalent a day but Fleury said they will need a large-scale
commercial pilot project.

The development will use thermal technology to produce the
reserves, where steam is pumped into the ground to liquefy the
bitumen so it can flow to the surface.

Penn West had been talking to CIC for about 11 months
before announcing the agreement.

The deal is the state-owned sovereign wealth fund’s second
big investment in Canada. Last year it took a 17.2 percent
stake in mining firm Teck Resources (TCKb.TO: ).

The closing of the financing and formation of the joint
venture is expected by June 1.

Units of Calgary, Alberta-based Penn West rose 83 Canadian
cents, or 4.3 percent, to C$20.28 by midday on the Toronto
Stock Exchange.

Stock Market Trading

($1=$1.01 Canadian)
(Additional reporting by Koustav Samanta in Bangalore; editing
by Rob Wilson)

UPDATE 2-Penn West, China fund to develop oil sands project