CNPC to buy Canada oil firm for US$4b
(Reuters)
Updated: 2005-08-22 17:30

Chinese oil company CNPC has agreed to buy PetroKazakhstan Inc. for $4.18 billion in China's largest foreign takeover, beating rival bidders including top Indian oil firm ONGC, the Reuters reported.

CNPC will pay $55 a share in cash, a 21.1 percent premium to Friday's closing price, said PetroKazakhstan, a Canadian-listed oil company operating in central Asia.

The deal, if it goes through, would be China's first successful takeover of a foreign listed energy firm and highlights Beijing's scramble to secure supply security for the world's second-largest oil consuming nation and the world's fastest-growing major economy.

"It's a very high price but this is a strategic investment. Finally, it's reserves that you can bring to China," said Stephen O'Sullivan, oil analyst at United Financial Group in Moscow.

Chinese oil firms have suffered a string of setbacks in their foreign forays due to political opposition and sky-high valuations of oil assets inflated by near record high oil prices.

CNOOC, China's third largest oil producer, lost out last month in an $18.5 billion bid battle for U.S. energy producer Unocal Corp..

Rival Chevron Corp. eventually won control of Unocal with a lower bid price than CNOOC's, which pulled out of the fight after U.S. politicians opposed its bid.

Analysts said the price paid by CNPC for PetroKazakhstan appeared high, but it would strengthen China's already substantial operations there, which include a giant pipeline pumping crude to China from the oil and gas-rich former Soviet state.

"There is a clear logic for the Chinese in this acquisition as they further strengthen their position in Kazakhstan, whose output is growing fast and which controls 3.3 percent of global oil reserves," Steven Dashevsky, chief analyst at Aton Brokerage in Moscow.

PetroKazakhstan, which is headquartered in Calgary, Alberta, but has all its operations in the republic of Kazakhstan, produced 150,000 barrels per day (bpd) last year and has proven and probable reserves of 535 million barrels.

China imports about 40 percent of its 6 million bpd daily oil consumption -- an amount roughly equivalent to the entire 2.5 million bpd production of Kuwait and set to increase in coming years.

RISK

A deal is far from certain, analysts warned. PetroKazakhstan has a rocky relationship with Kazakh authorities, and has fallen out with Russia's LUKOIL, its partner in a joint-venture in the Central Asian country.

O'Sullivan said the deal values PetroKazakhstan at around half the multiples of western oil majors based on production.

This price would have been value-dilutive for listed ONGC -- worth about $5 per barrel of reserves.

Aton's Dashevsky said his calculations showed CNPC had agreed to pay $69 per barrel of oil production and $7.10 a barrel in reserves.

"I think these are fair multiples bearing in mind legal risks, and the fact that PetroKazakhstan's fields are quite depleted and production has probably reached its peak."

Hong Kong-based energy equities analysts said they expected CNPC to inject PetroKazakhstan's assets into the Chinese firm's overseas assets joint venture with its listed arm, PetroChina, if the takeover is completed.