December 14, 2011 / 1:00 PM / 6 years ago

Aramco, Sinopec, CNOOC seek Frac Tech stake: sources

HONG KONG (Reuters) - Saudi Aramco, Sinopec (0386.HK) and CNOOC (0883.HK) are each in talks to buy a stake in Frac Tech International, according to sources, bringing in more global players to a U.S.-dominated push of hydraulic fracturing technology to tap huge new oil and gas resources.

The U.S. oilfield services firm, ahead of a planned public share sale next year, is looking at a $2.2 billion deal for a 30 percent stake, said two sources with knowledge of the matter who declined to be identified because the talks are private.

The sources also said on Wednesday that Frac Tech was in advanced talks with Saudi Aramco SDABO.UL, Spain’s Repsol-YPF SA (REP.MC) and Sinopec - as China Petroleum & Chemical Corp is known - to establish three separate fracking joint ventures in the Middle East, Argentina and China.

A stake in Frac Tech, which hired Barclays Plc’s (BARC.L) Barclays Capital to advise on the sale, would provide Aramco and China’s CNOOC Ltd and Sinopec with a solid entry into “fracking,” which is used extensively in North America to free trapped oil and natural gas.

“They believe there is a lot of shale potential in China and the Chinese just don’t have the U.S. expertise,” said Mike Breard, oil analyst at Hodges Capital in Dallas. “That would be the major reason for their interest in Frac Tech. They could help them frack the wells.”

Drilling in unconventional formations like shale and tight sands was pioneered and perfected in the United States and is said to have unlocked 100 years’ supply of natural gas. With shale basins scattered worldwide, some oil companies such as CNOOC have partnered with U.S. companies to gain know-how.

“The Saudis are actually looking at fracturing for oil development,” said Kenneth Medlock, fellow in energy and resource economics at Rice University’s James Baker Institute for Public Policy. “If the firms are able to deploy fracturing, it will enhance the resource that’s available to the planet.”

Fracking involves blasting water, sand and chemicals into wells at high pressures to crack the rock and allow oil and gas to flow up the well. In terms of pumping capacity, Frac Tech is No. 4 in the United States after Halliburton Co (HAL.N), Schlumberger Ltd (SLB.N) and Baker Hughes Inc BHI.N.

COME ONE, COME ALL

Frac Tech, 30 percent-owned by Chesapeake Energy Corp (CHK.N), is looking to sell 20 percent to 30 percent of itself, sources said, and may sell it to one party or divide it up.

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

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

It has hired Bank of America Corp (BAC.N), Citigroup (C.N), Credit Suisse CSGN.VX and Goldman Sachs Group Inc (GS.N) to underwrite the IPO, which is slated for the second half of 2012.

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.

Frac Tech, which helps exploration and production companies perform frack jobs, also produces equipment and materials and mines the sand used in the fracking process. The Fort Worth, Texas-based company is in early talks with three or four parties in Poland to establish a joint venture.

Each joint venture would need $500 million to $1 billion to capitalize, one source said, adding that Frac Tech would inject capital from its revenues without taking on additional debt.

The company generated $1.1 billion in revenue in the first half of 2011, up 143 percent from a year earlier. Adjusted earnings before interest, taxes, depreciation, and amortization jumped 178 percent to $453.5 million in the same period.

The sources said the IPO planned for next year is 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 to comment or could not immediately be reached.

Temasek is not the only big Asian player already invested in Frac Tech. Another backer 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.

Additional reporting by Xu Wan in Beijing, Anna Driver in Houston and Braden Reddall in San Francisco; Editing by John Wallace and Gerald E. McCormick

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