CNPC unit eyes Oil Search for up to US$5b

PUBLISHED : Monday, 17 September, 2007, 12:00am
UPDATED : Monday, 17 September, 2007, 12:00am

CNPC Exploration, the equal joint venture between China National Petroleum Corp and its Hong Kong-listed subsidiary PetroChina, is considering bidding for Australian petroleum and gas producer Oil Search for as much as US$5 billion, sources said.

Some European oil companies were also looking at the target, the sources said.

The process was in the early stages and could end with little achieved, they added.

Oil Search owns reserves in Papua New Guinea, Yemen, Egypt and Libya. Its annual report shows that it has proven and probable oil reserves of 1.43 billion barrels at the end of last year. It also owns gas reserves of 942 million barrels of oil equivalent.

'Papua New Guinea is a good asset and there's the opportunity to develop liquefied natural gas export, downstream gas processing and petrochemicals,' said Gavin Wendt, the senior resources analyst at Fat Prophets. 'It's got strong growth prospects and that's something all oil companies are looking for.'

Beijing is intent on boosting the use of clean burning gas and alternative energy sources, such as solar power, to reduce consumption of highly polluting coal, which accounts for more than 60 per cent of energy generated in the mainland.

The mainland began operating its first liquefied natural gas terminal in Guangzhou last May. Three more are scheduled to go onstream in Fujian, Shanghai and Zhejiang province by 2011. About 10 LNG terminals have the support of the central government and are to be built along the east coast.

PetroChina signed a A$45 billion (HK$295.13 billion) deal on August 6 to take LNG from Australia's Woodside Petroleum for up to 20 years.

It also signed a 20-year deal with Royal Dutch Shell for LNG from Western Australia for an undisclosed amount.

CNPC shifted most of its overseas assets to CNPC Exploration in 2002.

The mainland's largest oil producer, which owns 88 per cent of PetroChina, holds assets in politically unpalatable countries such as Sudan, which many countries accuse of supporting terrorism.

A spokesman for PetroChina said 'at any stage of a project's negotiations, we have limited information for disclosure'. Neither CNPC or Oil Search had any comments.

Oil Search has a market capitalisation of about US$3.6 billion. Its shares have been up 15 per cent this year and closed at A$3.85 on Friday.

Sources said any deal by the mainland firms would be between US$4 billion and US$5 billion, meaning at least A$4.28 per share.

Oil Search is among some oil companies that have long been on the radar screen of acquisitive companies because it is privately held instead of state owned.

'It's a perennial favourite,' said a banker not involved in the potential transaction.

The Australian firm earned net profit of US$207.5 million last year.