Chinese oil giant wins deal for BP Russia unit

PUBLISHED : Wednesday, 21 June, 2006, 12:00am
UPDATED : Wednesday, 21 June, 2006, 12:00am

China Petrochemical Corp, parent of China Petroleum & Chemical (Sinopec), has won a bid with partner Rosneft for a unit of energy giant BP in the first significant foray into the Russian oil and gas market by a mainland firm.

The acquisition would bring closer ties between China Petrochemical and Rosneft and bolster the case for the mainland oil firm to become a strategic investor in Rosneft's forthcoming US$10 billion initial public offering, analysts said.

In a statement, TNK-BP, 50 per cent held by BP, said it had reached agreement on the commercial terms for the sale of Udmurtneft to China Petrochemical after the conclusion of a six-month tender.

The deal was subject to the signing of a final agreement but settlement was expected in the near future, the statement said, without giving the winning bid price or the shareholding split between China Petrochemical and Rosneft.

The market had expected the deal to cost about US$3 billion.

A China Petrochemical source said the company and Rosneft would have equal stakes in the acquisition.

Udmurtneft produced about 122,694 barrels of oil a day last year. Half of this amounted to 6.87 per cent of China Petrochemical's average oil and gas output of 892,370 barrels of oil equivalent a day last year and 7.09 per cent of Sinopec's 865,214 barrels last year, the firms said.

It is not known whether China Petrochemical intends to offer Sinopec its interests in Udmurtneft, whose 26 oilfields are in the Udmurtia Republic, about 1,000km east of Moscow. A Sinopec spokesman said the company had no immediate plan to buy.

'Sinopec historically has said no to buying its parent's overseas assets at prevailing oil prices,' Deutsche Bank head of Asian oil and gas research David Hurd said.

Sinopec management has said it would only consider buying those assets when they enter a more mature development stage to reduce risk. Political risk was also cited as an impediment.

China Petrochemical has oil and gas assets in Algeria, Sudan, Yemen, Canada, Ecuador and Angola.

Rosneft became a major oil company after buying Yuganskneftegaz, a unit of Yukos Oil, from an obscure third party in 2004. Yukos was Russia's largest oil producer before it was split up by the government.

Meanwhile, the Sinopec source rejected media speculation that the government had asked the company to give up the opportunity to take part in Rosneft's listing to give way to rival China National Petroleum Corp (CNPC), parent of PetroChina.

'We have not heard of this. We are still considering the offer,' the China Petrochemical source said.

Spokesmen from CNPC and PetroChina declined comment.

Another source said both CNPC and China Petrochemical had recently been invited to become strategic shareholders in Rosneft through the offering and they had about two weeks to consider the offer.