PetroChina meeting obstacles as it seeks to buy South Bow pipeline stake

PetroChina Canada Ltd. has run into obstacles as it seeks to take full ownership of an Alberta pipeline system.

The Canadian arm of the Chinese state-owned energy giant has a half-interest in the Grand Rapids Pipeline, with Calgary-based South Bow Corp. holding the rest.

Grand Rapids runs 460 kilometres between the oilsands region in northeastern Alberta and the Edmonton area.

PetroChina was seeking to acquire South Bow’s interest under an option contained in their agreement that includes a 30-day time limit, said an Alberta Court of King’s Bench written decision posted online last week.

“The proverbial fly-in-the-ointment is the requirement of two governmental authorizations,” wrote Justice Douglas Mah, who rendered his oral decision in December.

“First, because of the size and nature of the transaction, dispensation is required under the Competition Act,” wrote Mah.

“Second, because PetroChina is a Chinese state-owned enterprise, its acquisition of South Bow’s interest in the pipeline must undergo a net benefit review under the Investment Canada Act. Both of these authorizations take time to get,” Mah added.

PetroChina served South Bow formal notice to exercise the buyout option on Nov. 21 and tendered a draft purchase and sale agreement.

It also asked that the timeline be extended from 30 days to the actual date of getting the government authorizations or that the closing be made conditional upon the approvals being in place.

Three days later, South Bow responded by saying it would not change its agreement with PetroChina and that its partner’s notice to exercise its option was “non-compliant because authorizations had not been obtained,” Mah wrote.

That would have put the expiration date for exercising the option at Dec. 24.

As it would have been impossible to have approvals in-hand by Christmas Eve, PetroChina turned to a dispute resolution process under its agreement with South Bow.

PetroChina asked Mah for an injunction to keep the option period from expiring while the two companies try and resolve the dispute through arbitration, “which will likely be some months down the road,” the judge wrote.

Mah denied PetroChina’s application, saying he’s not convinced the company would have suffered “irreparable harm” absent an injunction.

“PetroChina says that its irreparable harm is loss of the option, but that can be restored by the tribunal and that is exactly what PetroChina is asking for in the arbitration,” Mah wrote.

“In my view, harm cannot be irreparable if the applicant can be put in the exact place it wants to be by the decision-maker making the final decision. South Bow opposes that outcome but concedes that the arbitration tribunal has jurisdiction to make that decision.”

PetroChina reached its deal to build Grand Rapids in 2012 with TransCanada Corp., now known as TC Energy Corp. (TC spun off its oil pipeline business into South Bow in late 2024) and it’s been in operation since 2017.

The construction price tag at the time was $3 billion. The recent court decision did not include an updated valuation.

Neither South Bow nor PetroChina Canada immediately responded to a request for comment.