Chinese Companies On Buying Spree

A series of international acquisitions by Chinese oil companies is a prelude for more and bigger investments, with firms under pressure to enhance investor value and supply domestic refineries. In less than one week, three companies announced deals for producing oilfields in Indonesia, Tunisia and Azerbaijan, worth a total $852 million and adding combined reserves of over one billion barrels of oil equivalent (boe).

Faced with a growing dependence on foreign oil and driven by a need for corporate growth, China's big three - CNPC, Sinopec and CNOOC - together with state trader Sinochem, have made an impressive foray so far in the hunt for oil and gas beyond domestic borders.

In its latest deal, offshore monopoly and the smallest of the Chinese three CNOOC Ltd bought from Spain's Repsol-YPF its entire Indonesian oil and gas assets for $585 million in cash. The acquisition propelled CNOOC to the largest offshore producer in Indonesia with an annual output of 15 to 20 million barrels.

Tangguh, in Indonesia's Papua province, is on a shortlist of three for a liquefied natural gas (LNG) supply deal for China's first LNG terminal in the southern province of Guangdong. BP is operator of the project, which is competing with Australia's Northwest Shelf and Qatar for the supply deal, due to run for at least 20 years from 2006 and delivering three million tons per year of LNG.

CNPC is likely to focus on negotiations for a multi-billion dollar pact with Russia to ship Siberian crude to China via a 2,400-km pipeline by 2005. PetroChina would likely have first option to farm into the project. As well as the $2-billion, 20 million ton per year pipeline, CNPC wants to take a stake in the oilfields in the Siberian plains to supply Chinese refineries. In addition, two CNPC subsidiaries last week bought stakes in the onshore Azeri Kursangi and Karabagli oilfields, between the Caspian and Black seas.

Sinopec, China's largest refiner, has set its sights on the Middle East, West Africa and former Soviet Union. More than anyone else, Sinopec needs the crude it refines. Sinopec imports nearly 60 percent of the 2.11 million barrels per day it processes. The company is waiting for the green light from Kuwaiti authorities to participate in the giant $7-billion Northern Fields development.

Sinochem is also targeting more deals following its latest $215 million debut acquisition of an oil and gas company active in the Middle East. Sinochem bought Atlantis from Petroleum Geo-Service, which produces approximately 20,000 barrels per day oil in Tunisia.