UPDATE 7-China's Sinopec to pay $4.65 bln for oil sands stake

Tue Apr 13, 2010 2:19am EDT

* Sinopec unit to buy ConocoPhillips' 9 pct Syncrude stake

* Largest ever Chinese acquisition of Canadian asset

* Price tag higher than market had expected

* ConocoPhillips shares up 1.2 pct; Sinopec down 0.3 pct

* Canadian regulators not expected to block deal (Adds details)

By Michael Flaherty and Jeffrey Jones

HONG KONG/CALGARY, Alberta, April 13 (Reuters) - A subsidiary of China's Sinopec Group (0386.HK)(600028.SS)(SNP.N) agreed to pay $4.65 billion for ConocoPhillips's (COP.N) stake in a Canadian oil sands project, marking the country's second largest investment in North America.

China, Asia's largest refiner, has been scouring the globe and spending billions of dollars on energy resources to support booming growth in the world's third-largest economy.

China's power and energy companies spent around $20 billion alone last year on outbound acquisitions, an amount that includes Sinopec's $7.2 billion purchase of Addax Petroleum, a company with oil assets in West Africa and Iraqi Kurdistan.

The latest Sinopec deal, China's fifth-largest acquisition in history, underlines a resurgence in interest in the vast but difficult-to-extract oil sands energy resource located in the province of Alberta.

Investment in the oil sands has jumped since crude prices shot past $80 a barrel with the global economic recovery gaining traction.

U.S.-based oil major ConocoPhillips said it would sell its 9.03 percent interest in the Syncrude Canada Ltd project to China's top refiner. The deal, China's largest-ever purchase of a Canada-based asset, is set to close in the third quarter.

The price paid for the ConocoPhillips stake "is more than the market was expecting. They were expecting about $4 billion," said Phil Skolnick, an analyst with Genuity Capital Markets. "It just shows that the Chinese are a different kind of buyer."

Indeed, China's state-owned companies can take a longer-term view of major investments in sectors such as energy, where they have outbid many domestic players having no need to tap public markets for financing.

DEAL TO CLOSE IN Q3

In a separate statement, Sinopec International Petroleum Exploration and Production Corp, a Sinopec subsidiary, said the transaction was subject to government and regulatory approvals in China and Canada.

State-owned Sinopec controls Hong Kong-listed China Petroleum & Chemical Corp (Sinopec Corp), which announced in March that it will buy a stake in upstream assets in Angola for $2.46 billion. [ID:nTOE62P02C]

Syncrude, the largest project in the oil sands, has operated since 1978, and can now pump out 350,000 barrels a day, roughly 13 percent of Canada's overall oil output.

The ConocoPhillips transaction differs from other Chinese oil sands deals, which involved early-stage projects, according to FirstEnergy Capital Corp analyst Mike Dunn.

"Sinopec will continue to buy overseas assets but their priority will be on more developed projects that have started to generate profits," said Gideon Lo, an analyst at DBS Group Research. Sinopec is seen expanding in overseas E&P markets and reducing its reliance on the volatile refining sector in China.

For ConocoPhillips, the deal is part of a 2-year, $10 billion program of asset sales. When it first said it was putting the stake on the block last October, analysts pegged the value at $3.6 billion to $4 billion.

"This deal goes a long way in helping them reach their $10 billion asset-sale goal. It's probably a bigger chunk than they had anticipated," said Allen Good, analyst with Morningstar.

After Monday's announcement, ConocoPhillips shares climbed 64 cents, or 1.2 percent, to $55.96 on the New York Stock Exchange. Sinopec shares edged up 0.3 percent to HK$6.61 in a broader market .HSI down 0.6 percent.

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Graphic showing the world's largest oil reserves: here

Graphic showing China's top 10 foreign M&A deals: link.reuters.com/guz47j

FACTBOX on Chinese investments in oil sands: [ID:nN12197797]

For related BREAKINGVIEWS: [ID:nLDE63B1L1]

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OIL SANDS INTEREST

The oil sands make up the largest crude deposit outside the Middle East, a resource attracting a Who's Who of the global oil industry willing to pay extra in development costs in exchange for a secure supply in a politically stable country.

Last April, Sinopec bought an additional 10 percent interest in Total's (TOTF.PA) planned Northern Lights oil sands project for an undisclosed sum.

Canada recently subjected deals involving foreign state-owned enterprises to more regulatory scrutiny, but has not rejected any oil sands transactions.

Asked about the Sinopec deal during an event in Calgary, Canadian Finance Minister Jim Flaherty simply noted that large investments must meet tests on whether they are in the national interest.

"There are a couple of standards that have to be met and I'm sure the process will be followed," he told reporters.

Analysts said they do not see regulators blocking the deal.

"We've already seen a number of oil sands transactions that have been applauded by both the Alberta and federal governments, and there's basically a green light given to foreign entities," Skolnick, of Genuity Capital Markets, said.

Syncrude's largest owner, Canadian Oil Sands Trust COS_u.TO, was seen as a prospective buyer of ConocoPhillips' stake. Officials at the trust, which has a 37 percent interest, were not immediately available for comment.

Its trust units jumped 5 percent to C$32.22 on the Toronto Stock Exchange. The value of the deal showed the trust is likely worth more than the market had been affording it, although not the price Sinopec was paying, Skolnick said.

Syncrude's other owners are Imperial Oil Ltd (IMO.TO), Suncor Energy Inc (SU.TO), Nexen Inc NXY.TO, Murphy Oil Corp (MUR.N) and Nippon Oil Corp 5001.T unit Mocal Energy.

According to Thomson Reuters data, China Investment Corp's [CIC.UL] $5 billion investment in Morgan Stanley (MS.N) was China's biggest deal in North America. ($1=$1 Canadian) (Additional reporting by Alison Leung and Alison Lui in HONG KONG, Mike Erman in NEW YORK, Anna Driver in HOUSTON, Louise Egan in OTTAWA and Jeffrey Hodgson and Pav Jordan in TORONTO; Editing by Jean Yoon)

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