CORRECTED - CORRECTED-UPDATE 3-China Oilfield to buy Awilco for $2.5 bln

(Corrects to show in paragraph 7 China Oilfield to own 22 rigs)

(Adds confirmation, price of deal, details)

By Michael Flaherty and Judy Hua

HONG KONG, July 7 (Reuters) - China's largest offshore oil services group on Monday agreed to buy Norwegian competitor Awilco Offshore AWO.OL for around $2.5 billion to increase its drilling capacity and expand its business overseas.

China Oilfield Services Ltd (2883.HK) (601808.SS), an arm of China's top offshore oil and gas producer CNOOC, will pay 85 crowns per share for the Oslo-based company in what will be the fourth-largest cross-border acquisition by a Chinese company in the oil and gas sector, according to Thomson Reuters.

The price is an 18.7 percent premium over Awilco Offshore's July 4 closing price and 42 percent above where it traded before May 30, when Awilco said a third party had expressed an interest.

Awilco shares jumped 16.6 percent to a record high 83.50 crowns on Monday, while China Oilfield shares were suspended.

With $203.5 million in revenues last year, Awilco is hardly an industry giant. China Oilfield's sales rose 42 percent last year to 9.01 billion yuan ($1.3 billion). Buying Awilco expands China Oilfield's overseas operations, which accounted for just 18 percent of the state-run company's revenue last year.

"China Oilfield has $1 billion cash in hand. Its biggest problem has been there is no acquisition targets," said BOCI analyst Lawrence Lau. "Awilco has new rigs coming on stream over the next two years, which will benefit China Oilfield."

The deal allows China Oilfield to bring the amount of drilling rigs it owns to 22, with operations across the globe from Europe to Asia. It also gives access to international management expertise and technology.

Cross border acquisitions by China have more than quadrupled year to date to $41.1 billion worth of announced deals, according to Thomson Reuters.

The offshore services sector has been lifted by record oil prices CLc1, pumping up demand and more than compensating for rising labour and equipment costs.

The acquisition marks China Oilfield's first successful overseas purchase after failing to seal a small deal for Russian oil services firm STU from TNK-BP (TNBPI.RTS).

Politics has been an obstacle for Chinese oil sector acquisitions abroad. China's thirst for large foreign oil companies -- and for resources to feed its booming economy -- was showcased by listed CNOOC Ltd's (0883.HK) (CEO.N) $18.5 billion cash bid for California-based producer Unocal in 2005.

That deal failed amid political backlash from the United States.

"Compared with U.S. firms, European companies have less political obstacles for Chinese companies to make acquisitions," BOCI's Lau said.

China Oilfield has said it views Russia, the Middle East and the Gulf of Mexico as strategic markets it needs to explore.

It already maintains a presence in Southeast Asia.

China Oilfield Chief Executive Yuan Guangyu told Reuters last year that the company was in advanced talks to buy another foreign firm, in a deal that would dwarf the STU transaction.

Awilco Offshore ASA has a fleet of five modern jack-up and two accommodation rigs. It also has six rigs under construction, including three semi-submersible units, all due for delivery this year or next, and options for two more new rigs.

Speculation that a deal between the two was in the works heated up a few weeks ago.

Lehman Brothers LEH.N, JPMorgan (JPM.N) and China International Capital Corp (CICC) advised China Oilfield on the acquisition.

Awilco was advised by Fearnley Fonds and Pareto Securities. (Additional reporting by John Acher in Oslo; Editing by Tony Munroe and Lincoln Feast)