M&A - Asia

UPDATE 1-CNOOC gets LatAm foothold with $3.1 bln Argentina deal

* Deal will give CNOOC an entry into Latin America

* Will help CNOOC meet growth targets

* Deal expected to close as Bridas is a private firm

* CNOOC shares hit 2-mth high (Adds Bridas background from paragraph 21)

By Sui-Lee Wee

HONG KONG, March 15 (Reuters) - Chinese oil firm CNOOC's 0883.HK purchase of a stake in Argentina's Bridas Holdings gives it a foothold in reserve-rich Latin America and should ease investor worries about its aggressive output targets.

“The deal is attractive for CNOOC in the sense that it’s going to be strongly accretive in terms of reserves and adds to production in the near term,” said Neil Beveridge, senior oil analyst at Sanford Bernstein. “It takes them into South America in a material way.”

The $3.1 billion deal, CNOOC’s biggest since 2006, highlights China’s hunger for energy resources to feed the world’s fastest-growing major economy.

China’s oil and gas companies, tasked by the government with securing supplies, have announced roughly $18.8 billion in outbound acquisitions last year, according to Thomson Reuters data.

Analysts say the deal by China's top offshore oil producer and the smallest of China's triumvirate of energy firms including PetroChina PTR.N601857.SS and Sinopec Corp 0386.HKSNP.N600028.SS, shows CNOOC's drive for reserves as it is investing in ageing fields in Argentina, Bolivia and Chile.

CNOOC has adopted a 21-28 percent annual growth target this year, higher than the annual growth targets for international oil majors BP Plc BP.L and Royal Dutch Shell Plc RDSa.L, which have scaled back targets amid falling oil prices.

The acquisition will raise CNOOC’s proven reserves by 318 million barrels of oil equivalent (boe) and average daily output by 46,000 boe, the company’s president Yang Hua said on a media teleconference on Monday.

“In terms of (being) high value-enhancing, that’s more of a question mark. It’s a relatively low-margin business given the tax regime in Argentina,” Sanford Bernstein’s Beveridge said.

Argentina has low domestic gas prices -- at around $2 per million British thermal units (mmBtu) -- and an export levy on crude oil, which caps the crude price realisation at around $40 per barrel, CLSA analyst David Hewitt wrote in a note, making the deal less attractive in terms of margins.

Argentina’s proven oil and natural gas reserves fell 9 percent and 39 percent, respectively, between 2001-08, and exports have plunged.

At face value, the deal seems cheap -- CNOOC will pay about $10 per barrel of reserves -- compared with deals that were priced at $20 per barrel in the past, said David Johnson, an analyst at Royal Bank of Scotland.

The transaction is the latest announced by a company criticised for sitting on too much cash for too long. [ID:nTOE617038]

Last week, Tullow Oil Plc TLW.L said it had agreed to a framework deal with CNOOC and French oil major Total TOTF.PA for the companies to become equal partners in three Ugandan oil blocks. [ID:nLDE629051]

CNOOC shares rose nearly 1 percent early on Monday to their highest since Jan. 12, before easing to finish down 0.5 percent in a weaker overall market .HSI.


Analysts say CNOOC’s deal with Bridas Energy should be completed in the first half of this year, helped by Bridas’ status as a private company, owned by the family of Argentine tycoon Carlos Bulgheroni, and does not need multiple shareholder approval.

“The 50-50 partnership seems to be the mechanism by which Chinese companies are going global to mitigate government concerns about Chinese companies taking control of resources,” Beveridge said.

Chinese oil companies are already being hemmed in by recent consolidation that has limited the number of assets on the global market and by protectionism in Western countries.

Such concerns derailed CNOOC’s $18.5 billion bid for Unocal in the United States in 2005, and CNOOC’s Yang said the joint venture deal with Bridas is in line with its strategy of seeking cooperation, not outright acquisitions.

In a separate deal, Australia's Arrow Energy AOE.AX is set to reject a $3 billion joint bid from Shell and PetroChina 0857.HK because the offer price is too low. [ID:nSGE62D034]

Analysts say the Bridas deal could trigger a wave of investments from CNOOC CEO.N, which has been noticeably absent from overseas M&A since it paid $2.7 billion for a stake in Total's African Akpo field in 2006.

Latin America has been on the radar of China's acquisitive energy firms for years, and the Bridas deal comes after CNOOC's failed attempt to buy into Argentine energy company, YPF YPFD.BAREP.MC, a unit of Spain's Repsol-YPF.

Bridas Corp holds a 40 percent stake in Pan American Energy, an Argentina-focused oil and gas producer that is 60 percent-controlled by BP. Pan American has output of around 220,000 boe per day, equally split between oil and gas. It also has interests in Bolivia and Chile.

“If you look to the future, Latin America is an area where there’s a lot of exploration activity,” said RBS’ Johnson. “This deal gives them an entry into a market where the company has no current interest.”

JPMorgan JPM.N and Beijing-based Hopu Investments, run by influential China dealmaker Fang Fenglei, are advisers for the deal, banking sources said. [ID:nTOE62E03X] (Additional reporting by Jun Ebias in HONG KONG and Tom Bergin in LONDON, Editing by Ian Geoghegan)