CNPC, Chevron Held Talks on US Oil Field Stake Buy

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BEIJING (Dow Jones Newswires), Mar. 19, 2009

China National Petroleum Corp. has spurned a chance to secure a first foothold in the U.S. oil sector following an approach by Chevron Corp. to buy a stake in a Gulf of Mexico oil field, a CNPC official said.

San Ramon, California-based Chevron allowed China's biggest state-owned oil company by capacity to review technical data on the Big Foot oil field before a CNPC delegation traveled to the U.S. for initial discussions in the past month.

"Talks with Chevron are currently on hold. We wanted more equity than the 12.5% stake it was proposing to sell," the official said on condition of anonymity.

Chevron has a 60% interest in Big Foot, which is located in deep water around 362 kilometers south of New Orleans. Norway's StatoilHydro ASA and Royal Dutch Shell PLC have stakes of 27.5% and 12.5%, respectively.

"Chevron is not currently in any discussions on sale or partial sale of Big Foot," said a Chevron spokesman.

CNPC spokesman Liu Weijiang couldn't be reached for comment.

It comes as China's state oil giants step up their hunt for producing oil and gas assets, taking advantage of low valuations triggered by tight credit markets and oil prices falling $100 a barrel from their peak last year. China imports half of the crude oil it uses.

However, oil assets in the U.S. have remained off their radar since Cnooc Ltd., China's third-largest oil producer by capacity, abandoned an $18.5 billion takeover campaign for California-based Unocal Corp. in 2005. Cnooc's withdrawal followed criticism of its offer from members of U.S. Congress, and led to Chevron buying Unocal at a lower price than the Chinese side were willing to pay.

China's aggressive deal-making in the resources sector in recent months has triggered an upsurge of protectionist sentiment in target countries like Australia, whose center-left Labor government is calling for a bipartisan Senate inquiry into foreign investment.

Companies backed by the Chinese government are seeking Canberra's approval for more than $22 billion of resources deals, including a planned US$19.5 billion tie-up between Aluminum Corp. of China Ltd., or Chinalco, and Anglo-Australian mining giant Rio Tinto PLC.

Opponents point to a lack of reciprocity in China, with foreign firms hard-pressed to clinch M&A deals except in partnership with state-run firms. Critics were given further ammunition Wednesday when China's Ministry of Commerce blocked a $2.4 billion bid by Coca-Cola Co. for China Huiyuan Juice Group Ltd. on competition grounds.

The CNPC official said Chevron's willingness to farm out a stake in Big Foot was due to the U.S. company's successful bid in 2007 to develop the Chuandongbei natural gas block in southwestern China's Sichuan province.

Chevron signed a 30-year production sharing contract with CNPC on the area, which is the largest the Chinese company has ever offered to a foreign partner. The 2,000 square-kilometer field has an estimated resource base of 5 trillion cubic feet of gas, equivalent to 142 billion cubic meters.

"Chevron recognized it has to offer something in return. We'll now seek other opportunities for cooperation overseas," the CNPC official said.

Strategic Shift

Analysts say China's oil companies should look to become junior partners of U.S. oil majors if they want to build a position in the U.S. oil sector, as it means they wouldn't appear a threat to domestic firms and could start to build valuable political contacts.

However, CNPC would likely prove a controversial choice of partner for Chevron in any U.S. oil project, given the Chinese company's overseas portfolio also includes sensitive assets in Sudan.

U.S.-based activists have mounted a long-running campaign against PetroChina Co., CNPC's listed unit, on the grounds that supporting it with investments supports the Sudanese government in Khartoum. Earlier this month, Sudan's president, Omar Hassan al-Bashir, was indicted by the International Criminal Court for war crimes and crimes against humanity in the Darfur conflict.

Big Foot is one of several promising oil prospects that Chevron has discovered in the U.S. Gulf of Mexico.

Exploration and appraisal wells drilled over the past three years have indicated Big Foot has as much as 90 meters or more of net oil pay.

A presentation by Paul Siegele, vice-president of Deep Water Exploration & Projects, in November 2007 ranked Big Foot as the eighth biggest deepwater oil field discovered in the Gulf of Mexico in which Chevron has an interest.

Citing data from oil and gas consultancy Wood Mackenzie, Siegele said at the time that Big Foot has 200 million barrels of oil equivalent potentially recoverable.

Chevron said last year it was "evaluating a range of production development options for the Big Foot prospect."

Despite the company's size, CNPC has been selective in its M&A targets, and hasn't clinched a major acquisition since buying PetroKazakhstan Inc. for $4.18 billion in 2005.

Earlier this year, CNPC reached a deal worth roughly $400 million to buy the assets of Verenex Energy Inc., which are mostly in Libya. This deal is in jeopardy as Libya's top oil official said Wednesday Libya will exercise its first right of refusal to buy the assets.

CNPC's domestic rivals have also been active. People familiar with the matter say Cnooc has expressed interest in Kosmos Energy LLC's stakes in the Jubilee oil field offshore Ghana, which could fetch as much as $3 billion.

China Petrochemical Corp., known as Sinopec Group, also succeeded with a $2 billion bid for Canada's Tanganyika Oil Ltd., which has producing oil fields in Syria.  

Copyright (c) 2009 Dow Jones & Company, Inc.

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