Sinopec to Buy Some of Parent's Overseas Upstream Assets

HONG KONG - Refining giant China Petroleum & Chemical Corp., or Sinopec, said Monday it will buy some of its parent company's overseas upstream oil and gas assets after its parent finishes restructuring them and assessing their value, as part of a plan to secure hydrocarbon reserves and diversify its business to lessen the effect of volatile oil prices.

The Hong Kong- and Shanghai-listed company will need to secure external financing to buy the assets from China Petrochemical Corp., or Sinopec Group, Fu Chengyu, chairman of both companies, told reporters at an earnings briefing. He didn't give a timetable or further details about the planned purchases.

Word of the planned move comes after the refiner said Sunday its first-half net profit fell 41% from a year earlier to 24.50 billion yuan ($3.85 billion) as higher crude-oil feedstock costs and government restrictions on passing on price increases to customers hit its downstream refining operations.

Caught between higher raw material costs and domestic price caps on refined products, Sinopec and bigger rival PetroChina Co. have been actively seeking assets overseas. Sinopec's large downstream refining and petrochemicals operations leave it more exposed to government-mandated price controls.

Sinopec Group has oil and gas assets in the U.S., Canada, Brazil, and Australia. In February, it entered into a US$2.5 billion deal with Devon Energy Corp. for a one-third stake in five U.S. shale oil and gas fields.

Mr. Fu also said Sinopec Group's engineering services unit has secured an order to build a clean-energy project in Texas, but he added Sinopec Group won't actually be investing in the project.

The comment was in response to an earlier Wall Street Journal report that said Sinopec Group, along with some Chinese banks, were in talks to invest up to US$1 billion in a Texas clean energy project, in what would have been one of the biggest investments by Chinese companies in the U.S. power sector.

On the subject of Sinopec's $2.15 billion bid to buy China Gas Holdings Ltd., Mr. Fu said the deal is still awaiting the Chinese government's approval. He didn't give further details.

Earlier this month, Sinopec and gas supplier ENN Energy Holdings Ltd. extended the deadline for the completion of negotiations on their planned acquisition of China Gas by another month to Sept. 6.

However, the proposed deal faces significant challenges. China Gas's board earlier rejected Sinopec's unsolicited offer, saying it was "opportunistic" and failed to "reflect the fundamental value of the company."

China Gas's co-founder Liu Minghui, who was earlier imprisoned for embezzlement allegations for which he has since been exonerated, regained a spot on the company's board earlier this month and has been increasing his stake in the company in conjunction with other shareholders. Such purchases have helped push the company's share price above what Sinopec is offering, making it unlikely its shareholders will accept the offer.


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