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.”