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    China Business
     Jan 11, 2006
Curses, oiled again!

BEIJING - For the third time in recent months, India's Oil and Natural Gas Corp lost out to a Chinese firm in bidding for a Chinese oil asset, when the China National Offshore Oil Corp (CNOOC) announced the purchase of a 45% stake in a Nigerian offshore oil property from South Atlantic Petroleum Ltd (SAPETRO). According to The Times Online, ONGC's bid was blocked by the Indian government last month on "valuation and risk grounds".

ONGC bids had also gone down to Chinese companies in Kazakhstan - when PetroKazakhstan went to China's China National Petroleum Corp (CNPC) - and in Ecuador, when EnCana Corp, a Canadian-owned firm with assets in the South American nation, was sold to Andes Petroleum, a China-controlled consortium.

This time, the Chinese bidder was CNOOC, which announced on Monday that its subsidiary had acquired a 45% stake in a Nigerian offshore block. Ironically, the sale occurred just as India's oil minister, Mani Shankar Aiyar, was set to travel to Beijing to discuss energy-cooperation ventures between the two Asian giants. Notwithstanding the most recent incident, however, there have been successful examples of China-India energy tie-ups in recent months, particularly a recent joint effort in Syria (see India, China pin down $573m Syria deal, December 22, 2005).

The Nigerian deal
CNOOC announced that its subsidiary had signed an agreement with SAPETRO to acquire a 45% stake in Offshore Oil-Mining License (OML) 130 in Nigeria for US$2.268 billion in cash.

Fu Chengyu, chairman and chief executive officer of CNOOC, said the purchase will be funded from the internal resources of the Chinese firm. Fu said $1.75 billion would go to SAPETRO for the transaction and the other $518 million would be paid for the "earlier operation funds". Because changes in the "operation funds" are still possible, the bid might still be adjusted, according to a CNOOC source.

The purchase of OML 130 was a "rare" opportunity for CNOOC Ltd (a Hong Kong-incorporated subsidiary of the parent CNOOC), said Fu. OML 130 is covered by both a production sharing agreement (PSA) and a production sharing contract (PSC), each of which governs a 50% interest in OML 130. SAPETRO is currently the sole contractor and 100% interest holder in the PSC. Under the agreement, CNOOC will acquire a 90% interest in the PSC and hence a 45% working interest in OML 130.

Located in Nigeria, one of the world's largest crude-oil exporters, the Niger Delta region is one of the world's most prolific oil and gas basins. OML 130 covers an area of about 1,300 square kilometers in the Niger Delta, and is a deepwater block, with water depths ranging from about 1,100 to 1,800 meters. OML 130 contains the Akpo field, which was discovered in 2000, and three other significant discoveries: Egina, Egina South and Preowei. The block also contains a range of further exploration prospects.

According to estimates by France-based Total, the operator of OML 130, Akpo's P50 liquid recoverable volumes are about 600 million barrels, with potential for additional P50 recoverable oil in excess of the 500 million barrels for the whole OML 130 area. (P50 refers to an estimate that there is a 50% probability that a given quantity of oil can be recovered; it should be understood that reserve volumes are always estimates, since it is impossible to say with certainty how much oil can be extracted from a given field at the commencement of production.) Akpo is expected to come on stream by the end of 2008 and reach peak production shortly afterward. Total production is expected to increase sharply when Egina, Egina South and Preowei come online.

At a price of some $4.60 per barrel oil equivalent, calculated based on the P50 recoverable volumes of Akpo and other additional volumes in the OML 130 area, the terms of the acquisition are also highly attractive when compared with other recent world-scale upstream transactions, said Yang Hua, the chief financial officer of CNOOC Ltd.

The purchase of OML 130 will help CNOOC gain access to an oil and gas field of huge interest and upside potential, located in one of the world's largest oil and gas basins. With one of the leading deepwater experts as the operator of the field, CNOOC is confident of the rapid and efficient production of oil, said Fu Chengyu. He also said this transaction is aligned with CNOOC's long-term strategy of achieving growth through the exploration and development of offshore fields and achieving geographic diversification of the company's portfolio.

The transaction is expected to close in the first half of this year and is conditional on, among others, Nigerian National Petroleum Corp and Chinese government approval. Goldman Sachs (Asia) LLC acted as financial adviser to the company in connection with this transaction.

CNOOC Ltd, incorporated in Hong Kong, is a 70.64%-held subsidiary of China National Offshore Oil Corp, China's largest offshore oil producer.

(Asia Pulse/XIC/News Services)

The eagle, the dragon and African oil (Oct 12, '05)

India discreet, China bold in oil hunt (Sep 29, '05)

Kazakh oil coup for China, India cries foul (Aug 24, '05)

India, China: comrades in oil
(Aug 19, '05)


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