December 14, 2011 / 12:50 PM / 7 years ago

UPDATE 1-Aramco, Sinopec, CNOOC pursue Frac Tech stake-sources

* Deal expected to close by end Feb -sources

* Frac Tech generated about $1.1bln in revenues in H1 2011-filing

* Frac Tech in talks to set up fracking joint ventures-sources

* IPO could value Frac Tech at about $9 bln including debt-sources

By Stephen Aldred

HONG KONG, Dec 14 (Reuters) - Saudi Aramco, China Petroleum & Chemical Corp (Sinopec) and CNOOC Ltd are each in talks to buy up to a 30 percent stake U.S. oil and gas services company Frac Tech International two sources with knowledge of the matter said.

The oil companies’ discussions over a deal worth about $2.2 billion underline the growing interest in fracking, a controversial mining technique which has opened up huge reserves of previously untapped oil and gas but has attracted criticism from environmentalists.

The sources also said Frac Tech was in advanced talks with Saudi Aramco, Sinopec and Spain’s Repsol-YPF SA to establish three separate fracking joint ventures in the Middle East, Argentina and China.

Frac Tech, which is 30 percent owned by Chesapeake Energy Corp, is looking to sell between 20 percent and 30 percent of itself, the sources said, and may sell the whole stake to one party or divide it up.

Frac Tech has hired Barclays Capital to advise on the deal, the sources told Reuters, declining to be named because the discussions were private.

Singapore sovereign wealth fund Temasek Holdings holds 40 percent of Frac Tech through Maju Investments.

Frac Tech aims to close the deals by the end of February, the sources said, ahead of a planned initial public offering targeted to raise about $1.15 billion.

Frac Tech has hired Bank of America, Citigroup and Credit Suisse and Goldman Sachs to underwrite the IPO, which is slated for the second half of 2012.

JOINT VENTURES

Fracking involves pumping pressurized water, sand and chemicals underground to open fissures and improve the flow of oil or gas to the surface. This technique has opened up substantial reserves of unconventional oil in North America.

In November, Saudi Aramco’s chief executive acknowledged that the use of fracking was set to shift the energy balance of power and U.S. dependence on Middle East oil..

The planned joint ventures with Frac Tech would give the oil and gas giants access to the fracking technology which has developed rapidly in the past several years.

Frac Tech, which helps exploration and production companies perform “frac” jobs, produces equipment and materials as well as mining the sand which is used in the fracturing process, is also in early talks with three or four parties in Poland to establish a similar joint venture.

Each of the joint ventures would require around $500 million to $1 billion to capitalise, one of the sources said, adding that Frac Tech would inject capital from its revenues without taking on additional debt.

The company generated about $1.1 billion in revenues in the first half of 2011, up 143 percent from a year ago. Adjusted earnings before interest, tax, depreciation, and amortisation jumped 178 percent to $453.5 million in the same period..

The sources said the IPO planned for next year was for 15 percent of the company, and would value Frac Tech at around $9 billion, including debt of $1.5 billion.

Barclays, Sinopec and CNOOC declined to comment. Other companies mentioned either declined comment or could not immediately be reached.

Another big backer of Frac Tech is private equity fund RRJ Capital, whose Senja Capital holds about 11 percent of the company. Cayman Islands-based fund Cowboy Investment, owned by sovereign wealth fund Korea Investment Corp, holds 7 percent of Frac Tech.

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