Citic Resources acquires Indonesia oil project

PUBLISHED : Friday, 14 July, 2006, 12:00am
UPDATED : Friday, 14 July, 2006, 12:00am

Citic Resources Holdings has made its first overseas foray into the upstream oil sector, agreeing to buy a 51 per cent stake in an oil project in Indonesia for US$97.4 million.

Chief executive Sun Xinguo described the purchase as 'an important step in its strategy to increase exposure in the oil and gas sector', adding the company was looking for other opportunities in Southeast Asia.

Citic Resources, the listed energy and mining resources flagship of state-owned China International Trust & Investment Corp, has won an auction to buy the stake in Seram Non-Bula block on Seram Island in East Indonesia from Kuwait Petroleum Corp.

Citic Resources, which trades metals and produces coal, aluminium and manganese, has US$100 million in cash and US$200 million in bank credit. It will pay cash for the deal. The firm is being advised by N M Rothschild & Sons.

The block's principal producing Oseil field was estimated by independent technical advisers to have seven million barrels of proven reserves, six million barrels of probable reserves and 26 million barrels of possible reserves, Citic Resources said.

Output was 6,000 barrels a day last month and averaged 4,300 barrels a day in the first half of the year.

Mr Sun, a 35-year industry veteran Citic Resources hired from PetroChina, would not give the field's target output but said it was expected to peak at a 'much higher than current' levels in two to three years, when it should turn profitable.

The company made the bid based on an assumed oil price of US$40 to US$50 a barrel between 2009 and 2019 - the expiry year of a contract governing the sharing of output among its investors. Under the contract, the project has to contribute 37.5 per cent of income after deducting operating costs to Indonesia's oil and gas industry regulatory authority.

This means Citic Resources is entitled to 31.87 per cent of the project's economic interest.

Mr Sun said there was further exploration potential in the block but he declined to disclose the planned expenditure.

Oil from the Oseil field is expected to sell at a 15 per cent to 25 per cent discount to prevailing international prices, while operating costs amount to 20 per cent of its selling price, he added.

Mr Sun said Citic Resources preferred to buy producing oil and gas assets to control risks, but if it comes across an attractive non-producing asset, it may let its parent buy the asset first before selling it to the firm later.