_____________________________________________________________________________________________
China has expanded its Latin American oil reserves through the purchase of Occidental Petroleum’s Argentine assets.
The US$2.45 billion deal, by state-owned China Petroleum & Chemical Corporation – also known as Sinopec – is part of a drive by Asia’s largest oil refiner to increase its overseas investments and meet growing domestic demand.
The acquisition comes less than two weeks after China National Offshore Oil Corporation (CNOOC) and Argentine partner Bridas jointly bought a stake in Pan American Energy, Argentina’s second-largest oil and gas producer, from BP for US$7 billion.
In October, Sinopec clinched a US$7.1 billion deal to buy 40 per cent of Spanish oil major Repsol’s Brazilian assets. Sinopec, CNOOC and PetroChina also increased their energy investments in Venezuela to a planned US$40 billion earlier this month following the signing of a series of agreements.
The push in Beijing to expand its overseas energy portfolio comes amid concerns over possible disruptions to the country’s oil supply, with nearly half of its foreign crude coming from the Middle East. At the same time, Western oil companies are looking to sell increasingly costly oil fields to cash-rich Chinese companies, allowing them to redeploy capital in more profitable areas.
Due to its tough controls on the price and export of energy, Argentina has proved to be a difficult operating environment for oil firms. Following a drop in its returns on capital employed, Occidental announced it was leaving the country to purchase oil and gas properties in South Texas and North Dakota for around US$3.2 billion.
 Carlos Alfaro |
Alfaro-Abogados M&A partner Carlos Alfaro, who is advising Sinopec, said the Argentine deal was ‘a natural consequence of the restructuring of many Western traditional oil companies that are in need of reshaping their business, in a market where there are few buyers with available funds and many sellers’. According to Sinopec, the acquisition will raise its production by more than 51,000 barrels of oil equivalent a day and give it access to reserves totalling 393 million barrels. In a statement, the company said the deal would ‘prove significant in cementing economic ties and boosting trade between China and Argentina’. Speaking to the IBA, Norton Rose Group Chairman Stephen Parish said China was in a better position than many Western countries to buffer itself against economic difficulties in the region. ‘The fact that China was not domestically impacted by the global economic crisis means that it has the ability and need to drive these resources deals in regions like South America. Given the economic pressures in Europe and the US, there is not the same demand.’ He added: ‘The shift in economic power is definitely moving eastwards and all countries are looking to see what that shift means for their trade and economic ties. I believe we are going to see evolving and growing trade routes connecting China to markets other than Europe, US and Asia, which have been predominant to date. |
He added: ‘The shift in economic power is definitely moving eastwards and all countries are looking to see what that shift means for their trade and economic ties. I believe we are going to see evolving and growing trade routes connecting China to markets other than Europe, US and Asia, which have been predominant to date.
'The major engine for economic growth in the future will be the connection between these resource-rich countries and the high demand economies like China, India and Japan.’
‘China...has the ability and need to drive these resources deals in regions like South America.'
Stephen Parish
Chairman, Norton Rose Group
China’s investment interests also expand beyond the energy sector, Parish said, to encompass ‘the full remit of resources, from minerals, such as iron ore, to food supplies, such as rice and wheat’.
He added: ‘Along with these natural resources sectors, we are seeing China becoming increasingly active in the connected sectors of infrastructure and transport in markets such as South America and Africa.'
Fu Hualing
Stephen Parish
In a statement, Occidental Chief Executive Ray Irani said of the Sinopec deal: ‘These transactions will be immediately accretive to our earnings, return on capital employed and cash flow after capital.
‘With these new acquisitions and without Argentina in our asset mix, achieving both our short-term and long-term average annual production growth outlook of 5-8 per cent will be more certain and will generate higher returns.’
Occidental expects all of the transactions to be completed no later than the end of the first quarter of 2011.
China expands Latin American oil reserves through Sinopec acquisition