Background: China National Offshore Oil Corp
Related Story: CNOOC Takes 45% Stake in Nigerian Oil
India May Bid for Kazakh Oil Fields
HONG KONG (Dow Jones)--Chinese oil firm CNOOC Ltd. (CEO) is considering a bid of about US$2 billion for a Canada-based energy company that owns an oil field in Kazakhstan, people familiar with the situation said Friday.
China's largest offshore oil producer by production has increasingly looked overseas for oil assets, with the country becoming a net crude oil importer since 1993 because of its rapidly expanding economy. Monday, CNOOC disclosed a US$2.27 billion acquisition of a stake in a Nigerian oilfield, its first major acquisition since it lost a battle last year to take over U.S. oil and gas producer Unocal Corp.
CNOOC, which has said it views acquiring upstream assets internationally as a route to growth, has so far spent about US$3.7 billion on overseas acquisitions, including the Nigerian deal. It declined to comment Friday on the Nations Energy transaction.
Analysts said that given the bid for the privately owned Canadian-registered oil firm is still in the early stages, it is too early to put a fair value on the assets. But the fact that it is unlisted means a fair price is more likely, they said.
"This deal is positive, China needs to import oil, after all, but we have to know the valuation of the assets before we can say if it is at the right price," said Gordon Kwan, an analyst at CLSA in Hong Kong.
Nations Energy owns the Karazhanbas field in Kazakhstan, which has proven reserves of heavy oil exceeding 400 million barrels, according to Nations Energy's Web site. It also has licenses to the small fields of Mishovdag and Kelameddin in Azerbaijan.
The company had unsuccessfully tried to sell itself out to China National Petroleum Corp. last year, and unspecified Russian oil companies had also displayed an interest, another source said in December. But no deal was reached, the source said, without explaining why.
"Since it is an unlisted asset, as long as they can keep the deal in a low profile, the chances of overbidding for it should be low," Rachel Tsang, an analyst at Daiwa Institute of Research, said Friday.
Local media reported Friday that Nations Energy has invested some US$370 million in Kazakhstan, whose fields in the Caspian Sea produced 48,000 barrels a day as of March 2005. Output is expected to rise to 80,000 to 90,000 barrels a day by 2007.
The Karazhanbas oilfield is of low quality, with an American Petroleum Institute specific gravity of 19 degrees, Nations Energy said. API measures the purity of the crude. The lower the number of degrees, the lower the quality. Light crude oil has an API specific gravity of around 40 to 45 degrees, while lighter crude has an API specific gravity of 46 degrees or higher.
"China has many refineries which can process heavy crude oil now, so that shouldn't be a problem," said CLSA's Kwan.
Nations Energy posted a 63% jump in after-tax profit to US$80.5 million for the nine months ended September 2004, from US$49.5 million in the year-earlier period. The company's Web site didn't give more recent figures.
Citigroup Inc (C), which advised China National Petroleum Corp. on its US$4.18 billion acquisition of PetroKazakhstan Inc. last year, is advising CNOOC, while Credit Suisse First Boston Corp. (CSF.YY) is advising Nations Energy. Both banks declined to comment.
Like other oil firms in China, CNOOC has been looking overseas to meet the domestic market's ever-increasing demand for oil. Morgan Stanley earlier this week estimated CNOOC has net cash of US$3.5 billion, and expects its annual free cash flow to be about US$2.5 billion.
Monday, CNOOC said it was buying a 45% stake in the OML 130 offshore oil mining license that mainly covers Nigeria's undeveloped Akpo field from South Atlantic Petroleum Ltd., a company in turn owned by a former Nigerian minister. The Akpo field is operated by Total SA (TOT), which has a 24% stake in the field. The deal is expected to be completed in the first half, CNOOC said.
Between 2002 and 2004, CNOOC Ltd. spent a total of US$960 million on two oil and gas projects in Indonesia. In 2002, it paid US$348 million for a stake in Australia's North West Shelf liquefied natural gas project. It also paid US$122 million for a 16.7% stake in Canada's oil sands company MEG Energy Corp. in April 2005.
Currently CNOOC Ltd. retains the exclusive right in China to make overseas upstream oil purchases. Shareholders vetoed Dec. 31 the company's proposed amendment of a "non-compete undertaking" agreement with its parent, China National Offshore Oil Corp., which would have given the parent the right to bid overseas.
(Source: Dow Jones/Photo: AFP)