China's Sinochem to Bid for Devon's Egypt Oil Blocks

BEIJING Feb. 28, 2007 (Dow Jones Newswires)

China National Chemicals Import & Export Corp., or Sinochem, will bid for the oil assets of U.S. company Devon Energy (DVN) in Egypt, a Sinochem official said Wednesday.

Sinochem will make an offer before March 2, said the official, who declined to put a value on the bid.

However, another person familiar with the situation said Sinochem will bid in the region of $500 million for the Egyptian blocks.

A spokesman for Oklahoma City-based Devon declined to comment on which companies have expressed an interest in its assets in Egypt.

Devon said in January that it wants to sell its assets in Egypt and West Africa so it can focus on opportunities in North America, Brazil and China. Deals are expected to close between July and September.

Larry Nichols, chief executive of Devon, said on Feb. 7 that non-Western companies were among those interested in the Egyptian and West African oil and gas assets, but didn't single out the Chinese.

Chinese oil companies are targeting oil and gas assets in Africa as a means to offset stagnant domestic production and boost China's energy security by diversifying supplies away from the instability-prone Middle East.

Deals since the start of last year have included CNOOC Ltd. (CEO) buying a Nigerian oil field for $2.3 billion and China National Petroleum Corp. (CNPC.YY) acquiring the exploration assets in Chad of Canada's EnCana Corp. (ECA) for $202.5 million.

But their aggressive acquisition strategy has drawn criticism in the West, which says China is trying to lock up energy supplies at the expense of independent companies that don't have the same access to cheap capital.

Devon has four blocks in Egypt that are producing oil - East Zeit, Qarun, East Beni Suef and West Abu Gharadig - and has interests in six other exploration blocks in the country. According to Devon's Web site, the company's net production was 2,000 barrels of oil equivalent a day in 2005.

Of the 10 blocks that Devon has an interest in, four are located in the Western Desert and six operated by the company in the Gulf of Suez.

A successful bid would strengthen Sinochem's foothold in North Africa where it has a 50% stake in an oil block in Tunisia, producing 20,000 barrels a day.

But it is likely to face competition from other foreign oil companies for the Egyptian blocks. A media report in January said Indian exploration firm Prize Petroleum Co., a unit of Hindustan Petroleum Corp. (500104.BY), is planning to bid.

Sinochem, China's fourth-largest oil company by assets, lost its 50-year monopoly of the oil trade when the country entered the World Trade Organization. It has been actively diversifying its business into upstream and downstream sectors since 2002.

The company is also developing oil and gas fields in Ecuador and the United Arab Emirates, and last year opened a representative office in Gabon to hunt for upstream assets in the Gulf of Guinea.

The Sinochem official said the company was interested in more oil blocks in Africa, but didn't specify the countries that it was targeting.

On Feb. 5, Sinochem announced its entry into China's upstream sector with a $228 million deal to buy a 24.5% stake in the Zhaodong block in northern China's Bohai Bay from U.S. financial company New XCL Co.

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