April 13, 2010 / 8:49 AM / 10 years ago

China bags oil sands stake; not finished yet

HONG KONG (Reuters) - In its search for natural resources to fuel its high-octane economic growth, China Inc has snapped up assets from Australia and Central Asia to Latin America and Canada.

And that’s just for starters.

Sinopec’s (0386.HK)(600028.SS)(SNP.N) deal to buy ConocoPhillips’ (COP.N) stake in the huge Syncrude project in Canada’s oil sands for $4.65 billion is the latest in a series of resource-related deals made by the world’s fastest growing major economy.

More oil sands deals in Canada can be expected, bankers and analysts say, as well as iron ore and gas deals from Mongolia to Indonesia.

Canadian oil firm Opti Canada Inc OPC.TO and its peer Nexen Inc NXY.TO have drawn interest from Chinese oil heavyweights China National Offshore Oil Corp (CNOOC) (0883.HK) and CNPC, Asia- and Canada-based bankers have said in recent months.

“Everyone knows the oil price hasn’t fully recovered — there’s a lot of upside,” a source with knowledge of Sinopec’s deal told Reuters.

“At the current price point, oil sands is an economically viable business. This one was easy from an asset quality perspective,” the source said, referring to the Syncrude deal.

Investment in the oil sands has jumped since crude oil prices rose to above $80 a barrel as the global economic recovery gathers pace. Alberta’s oil sands are the largest deposits of crude outside the Middle East, although it can be tough and costly to get it out of the ground.

Since 2007, China has done 256 cross-border acquisitions in the oil and gas, metals and mining sectors, worth $68.6 billion, according to Thomson Reuters data. By comparison, the United States has done 774 such deals worth $58.3 billion.

STEPPING ON THE GAS

Oil resources aren’t the only target on China’s wish-list.

The world’s most populous country is also struggling to rely on gas for more of its surging energy needs — its LNG imports increased by two-thirds last year to 5.53 million tonnes, or 7.7 billion cubic meters (bcm).

Enter Indonesia; which bankers say is a prime target for acquisitive China, and where PetroChina’s parent, China National Petroleum Corp (CNPC) — as well as Chevron (CVX.N), Eni (ENI.MI) and others — has been touted as a potential development partner for the giant Natuna gas project located around 680 miles north of Jakarta.

CIC, PetroChina (601857.SS)(PTR.N), Sinopec, Sinosteel and Minmetals are all aggressively scouring Southeast Asia’s largest economy for targets and joint venture partners, according to investment banking sources who know and advise the companies.

Targets include LNG projects, oil blocks owned by foreign companies and coal mines, with some potential deals worth billions of dollars, according to the sources.

Last month, CNOOC and BG Group BG.L signed Australia’s biggest liquefied natural gas supply deal, paving the way for approval of BG’s $7.35 billion coal-seam gas project.

That deal came hard on the heels of PetroChina (0857.HK) and Royal Dutch Shell (RDSa.L) launching a $3.1 billion takeover bid for another Australian gas producer, Arrow Energy

HEAD OF STEAM

Iron ore, a key input for steelmaking, is another resource China has hungered for — witness Chinalco’s acquisition of a stake in Rio Tinto (RIO.AX)(RIO.L) two years ago in an attempt to block BHP Billiton (BHP.AX)BLT.L from buying Rio.

That hunger is still there.

China’s $300 billion sovereign fund, China Investment Corp (CIC) CIC.UL, plans to invest $700 million in Hopu-backed iron ore miner Iron Mining International Ltd, which is eyeing a Hong Kong listing this year.

“China has been very successful in the steelmaking materials — iron ore in particular,” said Andrew Harrington, coal analyst at Patterson securities in Sydney, citing Baosteel’s (600019.SS) deal last year to take a 15 percent stake in iron ore explorer Aquila Resources AQA.AX, as just one recent example.

“I think they will also look at coking coal, but not as intently as iron ore,” he added. “China produces a lot of both but has been dependent on foreign ore for a lot longer than foreign coking coal.”

China’s search for overseas natural assets still has plenty of steam, say investment bankers, and Sinopec is likely to be to the fore.

“The pace of our acquisitions will for sure extend,” said Xiao Hao, Sinopec’s media officer. “Key is if we can find the right partner. Upstream assets are what Sinopec and the country are short of.”

Sinopec’s $7.24 billion purchase of Addax Petroleum last year was a portent of things to come. As one company official, who did not want to be identified, said this week:

“We wish we could repeat the Addax deal once a year.”

(Additional reporting by Nick Trevethan in SINGAPORE and Chen Aizhu in BEIJING)

Editing by Michael Flaherty and Ian Geoghegan

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