Sinopec Group Pays Very High Premium for Brazil Oil Reserves

Sinopec Group Pays Very High Premium for Brazil Oil Reserves
Bloomberg
Δευ, 4 Οκτωβρίου 2010 - 13:53
China Petrochemical Corp.is paying a 76 percent premium to take a stake in Repsol YPF SA’s Brazilian unit as the world’s biggest energy user switches its hunt for oil reserves to Latin America from Africa

China Petrochemical Corp.is paying a 76 percent premium to take a stake in Repsol YPF SA’s Brazilian unit as the world’s biggest energy user switches its hunt for oil reserves to Latin America from Africa .

Sinopec Group, as China ’s second-largest energy company is known, agreed Oct. 1 to pay $7.1 billion for a 40 percent stake in Madrid-based Repsol’s unit, which has reserves in the same area as the biggest oil discovery in the Americas this century. That amounts to $15 a barrel compared with the $8.50 Petroleo Brasileiro SA paid last month for assets in Brazil , saidNeil Beveridge, an analyst at Sanford C. Bernstein & Co.

“This shows the importance that China places on securing oil resources overseas,” Beveridge said by telephone from Hong Kong . “This is a key emerging deepwater basin, and there are a lot of developments taking place. Sinopec has a good position established, but the price it has paid is very high.”

Chinese companies spent a record $32 billion last year buying energy and resources assets abroad. Sinopec Group’s investment is the country’s second-largest overseas acquisition and follows the company’s purchase ofAddax Petroleum Corp.for C$8.3 billion ($8 billion) last year to gain reserves in Iraq ’s Kurdistan and West Africa .Cnooc Ltd.and state-controlled Sinochem Group have paid about $3.1 billion each for stakes in oil producers in Argentina and Brazil .

‘Focus Has Switched’

South America seems to be a key area of focus at the moment,” said Beveridge. “The focus has switched from Africa , and it’s all part of China ’s desire for energy security and the exceptional growth in demand for oil.”

China consumed 8.6 million barrels of oil a day last year compared with 4.47 million in 1999, according to the BP Statistical Review of World Energy. The International Energy Agency estimates demand may reach 11.63 million a day by 2015.

Sinopec Group’s listed arm,China Petroleum & Chemical Corp., rose 1.2 percent to close at HK$6.96 today. The market was shut on Oct. 1 because of a public holiday. Repsol gained 0.2 percent in Madrid , afterjumping5 percent on Oct. 1 to close at a two-year high of 19.83 euros.

Shares of other energy companies with stakes in Brazilian offshore projects advanced Oct. 1 after Sinopec Group’s investment was announced.Galp Energia SGPS SArose as much as 7.8 percent in Lisbon , whileBG Group Plc, the U.K. ’s third- largest oil and natural gas producer, climbed as much as 5.8 percent in London .

‘Hefty Valuation’

“This puts a hefty valuation on reserves in Brazil ,” saidPeter Hitchens, an analyst at Panmure Gordon & Co. in London . “It could read through into BG’s assets.”

Brazil ’s state oil company Petroleo Brasileiro, known as Petrobras, issued about $42.5 billion of stock to the government last month in exchange for the rights to develop 5 billion barrels of oil reserves. Beveridge estimates Repsol’s assets in Brazil hold about 1.2 billion barrels of oil equivalent.

Repsol had considered a plan to sell about 40 percent of the Brazilian business through an initial public offering. The company now won’t be selling shares in the unit to the public, Madrid-based spokesmanKristian Rixsaid Oct. 1.

“For us, Brazil was way too large,” Repsol’s Chief Operating OfficerMiguel Martinezsaid in an interview on Bloomberg Television. “Obtaining a partner was a move that was necessary.” Repsol and Sinopec Group may work together in other areas in the future, he said.

Brazilian Reserves

Spain’s biggest oil company has stakes in Brazil’s Santos and Espirito Santo basins and plans to invest as much as $14 billion there through 2019, in fields that may hold as much as 3 billion barrels.

Since 2007, Repsol and partnersBG Groupand Petrobras have found hydrocarbons in the offshore Carioca, Guara and Iguacu fields in the Santos Basin ’s BM-S-9 block. They are ultra-deep deposits beneath a salt layer under the seabed.

Petrobras estimated in November 2007 that the Santos Basin ’s pre-salt Tupi field may contain as many as 8 billion barrels of oil, the largest find in the Americas since Mexico ’s Cantarell field in 1976. Repsol doesn’t own a stake in Tupi.

Repsol wants to invest in exploration in Brazil ’s offshore Santos Basin and elsewhere to increase reserves and output, while trying to reduce exposure to mature fields in neighboring Argentina . The company forecasts annual production growth of as much as 4 percent through 2014 as projects in Brazil and Peru come on stream. Repsol plans to invest a total of 28.5 billion euros in the period.

Crude oil futures in New York have gained 16 percent in a year to $81.58 a barrel. Prices reached a record $147.27 a barrel in July 2008.

“If oil does go over $100 a barrel, then this deal may look very attractive,” said Beveridge of Sanford C. Bernstein. “It comes down to it either seeing more exploration potential here, or Sinopec’s betting on higher oil prices in the future to justify the price it is paying.”

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