INTERVIEW: China, India Might Go Slowly On New Oil Deals

HONG KONG (Dow Jones)--China and India may have joined forces to produce oil in Syria, but that doesn't mean Asia's two largest energy consumers are about to seek out similar deals elsewhere, an investment banker says.

The Chinese-Indian bid for part of a Syrian oil field set off a flurry of talk that the neighbors, who share similar status as huge emerging economies but have enjoyed less-than-warm relations, might cooperate more in the scramble for global energy.

But such deals might not always make commercial sense, said the head of energy investment banking at Citigroup (C) in Hong Kong, who advised state-run China National Petroleum Corp. (CNPC.YY) and India's Oil & Natural Gas Corp. (500312.BY) on their Syrian venture.

When CNPC and ONGC made their unprecedented joint bid for Al Furat oil field in December, the Chinese and Indians agreed to cooperate further in securing the energy supplies that are crucial to both for future economic growth.

CNPC and ONGC paid US$575 million for an 18.75% stake in Al Furat that had been held by Petro-Canada (PCZ).

That deal gave rise to speculation that China and India would jointly pursue Nations Energy Inc., which owns the last sizable chunk of reserves in oil-rich Kazakhstan and recently put itself up for sale.

Sources told Dow Jones Newswires earlier that companies including China's CNOOC Ltd. (CEO) as well as CNPC and ONGC are exploring bids for Nations Energy, which is based in Canada and valued at about US$2 billion.

It is unclear whether the bids would be joint or separate, but China already has a strong presence in Kazakhstan and might be less inclined to let India in on any deals there.

"Going forward, linkups are likely to be conducted on a case-by-case basis and where they make commercial sense," said Marc Benton, the head of Oil and Gas at Citigroup in Hong Kong.

"You might see more (joint) deals but they will need to be beneficial to all interested parties," Benton told Dow Jones Newswires in an interview.

The Syrian deal may have worked in good measure because China and India were marginal players in the Mideast nation's energy sector. They had each just gotten one exploration contract there since they began trying in 2003.

In contrast, the Chinese are already doing business in Kazakhstan's energy sector, which gives them cost advantages over India, not to mention more built-in clout.

CNPC has stakes in several big oil fields in western Kazakhstan, while India hasn't established any foothold in the former Soviet state that holds some of the world's largest hydrocarbon reserves.

CNPC outbid India's ONGC in October and bought PetroKazakhstan Inc. (PKZ) energy assets for US$4.18 billion, boosting its operations in the region.

CNPC also built the 2,500-kilometer Kenkiyak-Atyrau oil pipeline across Kazakhstan to western China. That gives China an economic edge over the Indians, and less of an incentive to work out any kind of deal with India in the Central Asian nation.

ONGC has invested overseas through its wholly owned unit ONGC Videsh Ltd., which has assets in the Middle East, Africa, Latin America and the Asia-Pacific region.

The Chinese-Indian deal in Syria came after the Indians lost to the Chinese in several recent bidding contests.

For example, ONGC was beaten out by the Chinese in getting a slice of fallen Russian oil major Yukos' (YUKO.RS) main producing asset and in the acquisition of Canada's PetroKazakhstan and EnCana Corp.'s (ECA) Ecuador assets.

About a month later, China and India signed memoranda of understanding to boost cooperation, but many observers saw that as an experimental step.

Some observers said the Indians, who lag behind the Chinese in buying up overseas oil acquisitions, want to raise their chance of success and hopefully also to avoid paying too much for new oil by getting into any bidding wars.

India has been hunting assets overseas mainly through ONGC Videsh. The New Delhi government has recently encouraged other Indian oil companies, such as Oil India Ltd. (OIL.YY) and Indian Oil Corp. (530965.BY), to step up expansion abroad, with targets spread around in various places that include Oman, Australia and Egypt.

"China and India are clearly looking for more oil reserves and oil is a global business," said Benton. "The markets of Central Asia, Africa and Latin America are clearly of interest to both."