Gain from Bridas exit proves tough task for CNOOC

Growing risk in Argentina could be the reason behind the oil and gas producer's move to leave the country and shift focus to friendlier regions

PUBLISHED : Tuesday, 08 April, 2014, 1:08am
UPDATED : Tuesday, 08 April, 2014, 1:54am

CNOOC, China's dominant offshore oil and gas producer, is reportedly considering selling its stake in Argentina's Bridas although analysts said it would be tough to find a buyer willing to give the Chinese firm a profitable exit.

The state-backed firm was weighing the merit of disposing of its 50 per cent stake in Bridas, for which it paid US$3.1 billion, if it could make a profit to free up funds for other projects, Bloomberg cited sources as saying. The other half is owned by Argentina's Bulgheroni family.

When CNOOC signed a deal just over four years ago to buy into Bridas, one-month Brent crude oil futures were trading at US$87.50 a barrel, about US$13 lower than current levels. The West Texas Intermediate benchmark was US$79.40 a barrel, US$26 less than current levels.

CNOOC's Beijing-based spokeswoman did not return phone calls or respond to e-mails because it was a public holiday on the mainland.

Analysts differ on why CNOOC may want to sell the stake, but agreed there was no urgent need to sell and it would not be easy for it to book a gain.

"It's a bit surprising even though Argentina's oil industry has not exactly been investor-friendly," said Adrian Loh, Daiwa Securities' regional head of oil and gas research. "I don't expect a long queue of potential buyers for the asset, and even if it is sold at a premium, the proceeds won't make much difference for CNOOC, whose net debt-equity ratio is not high."

CNOOC had a net debt-equity ratio of 27 per cent, lower than fellow state-backed PetroChina's 39 per cent and Sinopec's 44 per cent. Selling the Bridas stake means the firm would need to replace its output contribution, roughly 4 per cent of its total, at a time when it is seen by some analysts as having difficulty reaching its goal to grow production by 6 to 10 per cent between 2011 and 2015.

Simon Powell, CLSA's head of Asian oil and gas research, said: "The only reason I could think of for CNOOC to sell is increasing country risk in Argentina, but I don't think the risk has changed."

In 2012, Argentina seized Spanish oil firm Repsol's 51 per cent stake in Argentine unit, YPF. Repsol has agreed to accept at least US$5 billion in compensation.

An analyst with a European brokerage said it made sense for CNOOC to redeploy its resources away from Argentina to Brazil where it bought a 10 per cent interest to drill for oil in the huge Libra deepwater project late last year. CNOOC bought half of Bridas in March 2010.

"It would be hard to find a buyer, except maybe the Argentinian government … It would be hard for CNOOC to sell at a profit," he added.

Argentina's low gas price and high oil and gas export tax made the country a less attractive place for investment compared with China, but CNOOC said in 2010 that Bridas would give it a toehold in Argentina. It hoped market liberalisation would allow it to tap into the country's offshore projects and shale gas resources.

Loh said selling the Bridas stake would be against the strategy set by former chief executive Fu Chengyu and chief financial officer Yang Hua, although it was not clear whether CNOOC's current management had decided to shift its focus back to China and friendlier regions.