China Oilfield Services to Buy TNK-BP Oil Service Unit Stake

SHENZHEN, Dec 18, 2006 (Dow Jones Newswires)

Chinese oil drilling services provider China Oilfield Services Ltd. (2883.HK) said Monday it signed a preliminary agreement to buy a stake in an oil field services unit of Russia's OAO TNK-BP (TNKB.RS).

The Chinese company said the deal won't cost more than CNY500 million (US$64 million).

"Russia has a very rich resource of energy and gas," COSL President Yuan Guangyu told reporters during a field visit in Shekou, Shenzhen.

"We are aiming for a controlling stake, but it's too early to talk about the details as they aren't final yet."

Yuan declined to name the TNK-BP unit in which COSL is investing.

Hong Kong-listed COSL is also preparing to list in mainland China to raise funds for further expansion, he said.

The Russian deal follows COSL's failed attempt to buy a stake in Indonesian oil field services company PT Apexindo Pratama Duta Tbk earlier this year. PT Apexindo had decided not to proceed with the deal.

TNK-BP, a joint venture that incorporates BP PLC's (BP) assets in Russia, has 43 units engaging in oil field services, including drilling, well servicing, maintenance and electricity transmission. The venture has said it plans to eventually withdraw from services provision, which it sees as a non-core operation. Yuan said COSL is preparing to list in China but doesn't have a definite plan yet.

"The mainland's (stock) market is improving, there is investor interest in our company," he said.

"But whether we will do it or not, it all depends on how much money we need for expansion."

He said if the company's net debt to equity ratio goes above 70%, that may be the time for it to list to raise money. COSL's net debt to equity ratio is about 30%, he added.

Last week, COSL said it will seek shareholders' approval to issue up to CNY2 billion worth of bonds next year to fund its capacity expansion.

COSL plans to upgrade one of its existing vessels into an eight-cable exploratory vessel, which would take a year to build and cost about CNY500 million, said Yu Zhanhai, general manager of the company's geophysics division.

The more cables an exploratory vessel has, the more efficiently it can collect undersea seismic data, which is part of the preparatory work for exploration of crude oil and gas offshore.

Most oil services providers now use 16-cable exploratory vessels. COSL has one six-cable vessel, and most of the rest are four-cable or single-cable.

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