Two of China's biggest oil producers are competing for
a stake in a U.S. shale-gas
services company -- another step in China's
effort to tap its huge reserves of a fuel that has helped the U.S. reduce its dependence on
energy imports.
Cnooc Ltd. and China Petrochemical Corp. are competing to buy a 30% stake in
Texas-based FTS International Inc. in a deal that could be valued at about $2
billion, a person familiar with the situation said. State-controlled Saudi Arabian Oil Co., known as Saudi Aramco, also is bidding, the person said. The bidders didn't respond to
requests for comment.
U.S.-based Chesapeake Energy Corp. is a shareholder in FTS, which is known as
Frac Tech, and has said it wants to sell its stake.
For Sinopec Group, as China Petrochemical is known, the bid is part of a
multitiered expansion effort into natural gas. The company's China Petroleum
& Chemical Corp. unit and ENN Energy Holdings Ltd. on Tuesday offered up to
$2.15 billion to acquire China Gas Holdings Ltd. China Gas, which has an
extensive gas-distribution network in China, said late Wednesday that the bid
"fails to reflect its fundamental value." Sinopec is likely to press
on regardless, people close to the offer said.
China
long has relied on its abundant supplies of coal to fuel its fast-growing
economy. But the country is ramping up imports of cleaner-burning gas.
Beijing also hopes to exploit China's own
natural-gas reserves. Among them, shale-gas deposits can be extracted by
breaking the underground rock and pushing water and chemicals through the
cracks to release hydrocarbons, a process called hydraulic fracturing, or
fracking.
China's technically
recoverable shale-gas reserves are almost 50% greater than those of the U.S., according
to the U.S. Energy Information Administration. But China's commercial production has
been stymied by harsh terrain and insufficient technological prowess. Regulatory
uncertainty also poses a roadblock; China has yet to outline terms for
production-sharing contracts between foreign and state-owned companies.
Chinese companies have scoured the globe for energy, often ending up in remote
and politically marginalized areas shunned by big Western oil companies, most
notably in Sudan.
Access to fracking technology, such as the equipment made and operated by Frac
Tech, would be a major step toward tapping resources in China and
elsewhere.
Frac Tech is close to agreeing to joint ventures with Sinopec in China, SaudiAramco in the Mideast and Repsol YPF SA in Argentina,
according to the person familiar with the matter. The Fort Worth, Texas,
company would take a 49% stake in each project, with the foreign partner taking
the remainder.
A consortium led by Singapore
state-owned investment firm Temasek Holdings Pty. Ltd. and including
sovereign-wealth funds Korea Investment Corp., China Investment Corp. and the
Abu Dhabi Investment Council owns 70% of Frac Tech. The rest is held by U.S.
natural-gas company Chesapeake Energy Corp. The stake sale up for bid likely
would involve Frac Tech issuing new shares and a partial stake sale by existing
shareholders, the person familiar with the matter said. The funds
raised would help Frac Tech's international expansion.