Oil majors face battle in Kazakhstan

PUBLISHED : Wednesday, 17 August, 2005, 12:00am
UPDATED : Wednesday, 17 August, 2005, 12:00am

Indian and Chinese groups court testy authorities with bids for Canadian firm

China National Petroleum Corp (CNPC) is set to lock horns with India's Oil and Natural Gas Corp (ONGC) in a battle to acquire Canada's PetroKazakhstan.

The two suitors, the largest oil producers in the world's fastest-growing major economies, have reportedly both submitted bids for all of Calgary-based PetroKazakhstan, which owns assets in the Central Asian country.

CNPC, parent of PetroChina, put in a bid of US$3.2 billion late on Monday, while ONGC submitted a US$3.6 billion offer.

The move comes less than a month after CNOOC lost out to global oil giant Chevron Corp in a bidding war for Unocal Corp, the United States' ninth-largest oil firm.

Spokesmen for CNPC adviser Citigroup and PetroKazakhstan adviser Goldman Sachs declined to comment. CNPC's own spokesman could not be reached.

But a PetroChina spokesman said the company would not be involved in the bidding, although if CNPC won, PetroChina would have the preferential right to buy the acquired assets from CNPC.

PetroKazakhstan put itself on the market after its relationship with Kazakhstan's authorities soured. One of the firm's main joint ventures has been ordered by the government to cut production by a third to reduce gas flaring after the government complained it charged farmers too much for refined oil.

In June, the authorities told PetroKazakhstan the government had the right of first refusal on its sale, raising the risk that no deal would get off the ground.

With proven oil and gas reserves of 549.8 million barrels of oil equivalent (boe) at the start of this year, PetroKazakhstan is small compared with CNPC's more than 19 billion boe and ONGC's four billion boe.

It has a market capitalisation of about US$3.35 billion compared with ONGC's US$31 billion and PetroChina's US$158 billion.

Analysts said CNPC had greater synergy with PetroKazakhstan and better relations with Kazakhstan than ONGC, which had no operations in the country.

'But ONGC is smart in that it has teamed up with [Indian-owned] global steel giant Mittal to co-bid for PetroKazakhstan as Mittal has worked with the Kazakhstan government before,' said CLSA China oil and gas research director Gordon Kwan.

CNPC has been operating in Kazakhstan since 1998 and wholly owns its third-largest crude producer, Aktobenmunaigaz. It is also building an oil pipeline from Atasu, which is connected to PetroKazakhstan's operating areas, to Alashankou in Xinjiang province.

India and China are keen to snap up assets in neighbouring countries to enhance their energy security.