Sinopec Agrees to Buy Unit From BP's Russian Venture


June 20 (Bloomberg) -- Sinopec, China's second-biggest oil company, agreed to buy an affiliate of BP Plc to produce oil in Russia for the first time.
The sale of OAO Udmurtneft near the Urals will be completed in ``the near future,'' TNK-BP said today in an e-mailed statement. The value of the transaction wasn't disclosed. The unit is valued at about $3 billion, people familiar with the sale said in February. Udmurtneft pumps 115,000 barrels a day of oil, about 4.5 percent of China's crude oil imports last year.
China, whose oil demand more than doubled in a decade, was pitted against India's Oil & Natural Gas Corp. and Russian companies in bidding for Udmurtneft. Sinopec Chairman Chen Tonghai is seeking crude oil from Angola to Russia to make fuel for the world's fastest-growing major economy.
``China wants to secure oil supplies for its future needs,'' said Sebastiaan de Bont, who helps manage the equivalent of $4.4 billion in emerging market funds, including Sinopec shares, at Robeco Group in Rotterdam. ``In much the same way, Cnooc has attempted to acquire oil assets in the U.S., and it has bought oil and gas stakes in Australia and Indonesia.''
Cnooc Ltd., China's biggest offshore oil explorer, last year abandoned an attempt to buy Unocal Corp., citing opposition from U.S. lawmakers.
Chinese Premier Wen Jiabao is due to arrive in Angola today, the fourth stop of a seven-nation African tour aimed at cementing relations and securing energy supplies.
Sinopec's Output
Beijing-based China Petrochemical Corp., also known as Sinopec Group, is the wholly state-owned parent of Hong Kong- traded China Petroleum & Chemical Corp., known as Sinopec Corp. The parent produced about 775,000 barrels a day of crude oil in 2004, according to its Web site.
Huang Wensheng, a spokesman for China Petroleum, referred questions on the acquisition to the parent company. Zhang Zheng, a spokesman for China Petrochemical, declined to comment. Wendy Silcock, a spokeswoman for BP in London, declined to comment, referring enquiries to TNK-BP.
Sinopec will more than likely buy Udmurtneft jointly with Russian state oil company OAO Rosneft, Interfax reported, citing an unidentified official from the China's oil industry. An accord on the sale was reached before last week's summit of the Shanghai Cooperation Organization, the report cited the source as saying.
Rosneft spokesman Vladimir Voyevoda declined to comment on the Interfax report.
`Very Positive'
The acquisition is ``very positive to Sinopec in terms of long-term strategy, beefing up its upstream exploration prowess vis-à-vis sibling rival PetroChina, which sits atop proven reserves six times Sinopec's,'' Gordon Kwan, director of China oil and gas research at CLSA Ltd. in Hong Kong, said in a research note.
The purchase may value Udmurtneft at about $6 per barrel of oil reserves, according to Kwan. The Russian producer holds 551 million barrels of proved oil reserves, the TNK-BP statement today said.
The price would compare with $8.50 a barrel that China National Petroleum Corp. paid in October when it bought PetroKazakhstan, which accounts for about 12 percent of Kazakhstan's oil output, for $4.18 billion.
The purchase of Udmurtneft will allow China Petroleum to boost crude extraction by 16 percent next year, and reserves by 19 percent when completed, CLSA's Kwan said.
Firming Ties
This ``would be the first significant acquisition by a Chinese company in Russia,'' Steven Dashevsky, the head of research at Moscow-based Aton brokerage, said. ``Chinese companies are renowned for paying an entrance premium and likely did so in this case too.''
China and Russia, the world's second largest oil supplier, are expanding their energy cooperation as President Vladimir Putin's government seeks to benefit from higher energy prices and increase his country's political influence.
OAO Rosneft, Russia's state oil company, and China National Petroleum in March agreed to jointly enter into refining and fuel retailing in China to tap rising demand for oil products such as diesel and gasoline.
China gave Rosneft a $6 billion loan as an advance payment for future oil deliveries from Russia. Rosneft paid $9.3 billion for OAO Yuganskneftegaz, which had been seized by the Russian government from OAO Yukos Oil Co. to recover part of a $30 billion tax debt.
Ease Cooperation
Putin and President Hu Jintao in March agreed to facilitate cooperation between the two nations' companies in the development of oil and natural gas projects.
OAO Gazprom, the world's biggest natural-gas producer, is considering two pipelines that will deliver fuel to China starting in 2011, Chief Executive Officer Alexei Miller said June 6. The western route will tap into developed fields in West Siberia, transporting 30 billion cubic meters of gas annually.
OAO Transneft, Russia's oil pipeline monopoly, is spending at least $11.5 billion to build a pipeline across eastern Siberia, which will boost crude exports to Asia. The first stretch will terminate 60 kilometers (38 miles) from the Chinese border and will be able to supply 600,000 barrels a day.
China Petrochemical and Sonangol SA, Angola's state-owned oil producer, secured a $1.4 billion loan to develop oil fields, a banker involved said on May 11. The loan is for a joint venture, Sonangol Sinopec International, which is set to drill fields off the Angolan coast, International Oil Daily said on May 11.
Cnooc has invested at least $2.7 billion in projects abroad this year, including oil fields in Nigeria and stakes in Australian gas ventures.
To contact the reporter on this story:
Eduard Gismatullin in London at
egismatullin@bloomberg.net;
Ang Bee Lin in Hong Kong at Bang5@bloomberg.net
Last Updated: June 20, 2006 11:22 EDT