Sinopec, CNOOC in possible $7 billion OGX bid: sources

HONG KONG Fri Sep 10, 2010 3:19pm EDT

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HONG KONG (Reuters) - China's Sinopec Group and CNOOC Ltd (0883.HK) are bidding for stakes in assets owned by Brazilian oil and gas start-up OGX SA (OGXP3.SA) in a potential $7 billion deal, sources with direct knowledge of the matter said on Friday.

OGX, part of the EBX industrial conglomerate owned by Brazilian billionaire Eike Batista, is considering sales of stakes in some of its oil blocks after making a string of hydrocarbon finds in recent months.

The energy start-up conducts exploration activity in 29 blocks in Brazil and is mostly focused on shallow water exploration.

Morgan Stanley (MS.N) was advising Sinopec, two sources said,but did not elaborate on the structure of the bid. Bank of America-Merrill Lynch (BAC.N) was advising CNOOC, another source with direct knowledge of the matter said.

Sinopec and CNOOC were likely to launch a joint bid, one of the sources added, but the final valuation of any deal is still being debated.

"If you look at the seller's numbers, you'd pay $7 billion for it. The problem is it's an appraisal play, so it's at a very early stage; you don't really know what's there," one of the sources said. "I don't think the transaction will happen at much below $5 billion unless the seller really caves."

The news of banking mandates and the potential size of the deal follows speculation about informal Chinese interest in OGX in recent months, with mainland media reports claiming Sinopec and CNOOC have had talks with OGX over a 20 percent stake in an offshore oil field in Brazil's Campos Basin.

The deal may also include an OGX equity component, said the sources, but whether or not OGX would go ahead with selling stock in the newly public company remained unclear.

"The deal structure that's been put on the table has a couple different components to it - it's not all at the asset level - there may be an equity stake that OGX wants to sell," one of the sources said.

Morgan Stanley and Bank of America-Merrill Lynch declined to comment when contacted by Reuters.

The sources were not authorized to speak publicly about the matter and declined to be named.

Sinopec could not be reached for comment.

"Given the stage of the process, I am not in a position to give any comments," Sinopec spokesman Huang Wensheng told Reuters when asked about the auction in late August.

CNOOC, which announced the appointment of a new CFO on Friday, and OGX were not immediately available for comment.

Other potential bidders mentioned in Brazilian media reports include Chevron Corp (CVX.N), Statoil ASA (STL.OL), and Exxon Mobil Corp (XOM.N).

BRAZIL CALLING

China has become the biggest foreign direct investor in Brazil this year with purchases ranging from oil stakes and iron ore mines to vast tracts of farmland, as the soon-to-be world's second-largest economy scoured the globe for resources to feed its booming economy.

A deal with OGX would be another victory for China, which is aggressively seeking resources deals in Latin America. In May, Sinochem won a roughly $3 billion stake in Peregrino, a Statoil offshore oilfield in Brazil.

"I think, generally speaking, it's mainly a China play right now," the source said, referring to OGX. "The Chinese tend to have the most aggressive posture toward these types of assets. If you look at the final round of Peregrino, it was Sinochem, Sinopec, and PTTEP. There wasn't a single Western major."

(Editing by Chris Lewis)

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