June 12,2009

PetroChina, SinoPec and CNOOC Grab Oil Assets Ahead of Recovery

By CT Johnson

As oil prices rebound past $ 70 per barrel, China's three major oil companies, PetroChina, SinoPec and CNOOC, are stepping up their overseas M&A activities before the prices return to $100 per barrel.

PetroChina and CNOOC are seeking to acquire 30% of Ghana’s Jubilee oil field from owner Kosmos Energy Corporation (Kosmos).  Although CNOOC itself is unwilling to disclose its offering price, industry-experts speculate that it will bid at least $4 billion for the project. 

Kosmos is a small-scale, privately-held oil and gas company headquarted in Dallas, USA, with operations centered in Africa.  Kosmos is the main foreign investor and operator in Ghana’s oil sector, with total oil and gas assets of between $ 3-6 billion under management.

The Jubilee oil field is one of the largest oil fields discovered in recent years, with estimated reserves of up to 1.2 billion barrels.  The field is expected to begin production in the second half of 2010.  Kosmos owns 30.87% of Ghana’s Cape Three Points Deep Water field and 18% of the adjacent Tano Deep Water.  The Jubilee oil field stretches across the adjoining blocks.

Britain’s BP, America’s Chevron Corporation, the Italian oil company Eni, and the Indian Oil and Natural Gas Corporation have all shown interest in the new fields and will participate in the bidding.

Responding to the decline in oil prices from their July, 2008 high of $150 per barrel, the three domestic oil giants are making concerted efforts to grab a variety of overseas assets. 

Last month, PetroChina offered 1.47 billion Singapore Dollar (SGD) (about 6.94 billion yuan) to aquire a 45.51% stake in Singapore Petroleum Company.  The deal is awaiting final approval from Chinese regulatory authorities and the transaction is expected to be finalized in July.

SinoPec also confirmed that it was negotiating an acquisition with Addax, a Canadian oil exploration company.  That transaction is expected to top $ 8 billion, although the two sides have yet to reach agreement on a deal.  Addax, which is listed in Toronto and London, had production volumes of about 1.365 million barrels / day last year.  At the end of last year, the company boasted reserves of 537 million barrels and total assets of $5.317 billion.  The company’s Nigerian oil assets have drawn particular interest from China's oil companies in recent years.

Africa has been an important focus of CNOOC’s M&A activities in recent years.   In 2006, a listed company owned by CNOOC acquired 45% of the Nigerian offshore oil mining license No. 130 for $ 2.268 billion (about 18.144 billion yuan).  In March this year, the deep water field went on line, with peak of crude production expected to reach 175,000 barrels per day.  Aside from the oil fields in Nigeria, CNOOC has no other significant assets in Africa.  The successful acquisition of a stake in Jubilee field would be a major breakthrough for the company.

During the past six months, although China has acquired a large number of resources through loans, there have been no other large resource acquisitions, except for SinoPec’s $2 billion acquisition of the Canadian operator Tanganyika Oil at the end of last year.

In the wake of the financial crisis, state oil companies have taken a leading role in M&A market with China’s national petroleum corporations assuming a dominant position.  Prior to May 14, there were a total of 14 cross-border oil transactions worldwide, with a total value of  $46.5 billion.  China accounted for $45 billion of this, with Japan making up the remaining $1.5 billion.  There were another 22 BTG investments valued at $11.1 billion, $9.66 billion of which were cross-border acquisitions made by Russia, China, Colombia, and Iran.

During the first half of 2008, oil giants like Exxon Mobil showed more caution.  These major oil and gas companies have instead concentrated on investment optimization and global reorganization of the assets acquired during previous rounds of M&A.  They have concentrated their acquisition efforts on high-quality world-class assets such as those in Iraq, while showing limited interest in acquiring large companies.

It is worth noting that while Chinese national oil giants like PetroChina are vigorously carrying out overseas investment, most Western oil and gas companies have choosen to sit out the current round of acquisitions.  In addition, companies with a 35% debt ratio have been acquired before September 2008 and 84 companies have disappeared from the market this year.

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