MercoPress. South Atlantic News Agency

Chinese oil firm buying 50% stake in Argentine group

China's demand for oil is continuing to grow strongly

China National Offshore Oil Corporation (CNOOC) is paying $3.1bn (£2bn) for a 50% stake in Argentine oil and gas group Bridas Corporation. Cnooc Ltd.,

“Cooperation with Bridas would be an important step in our plan to go global,” President Yang Hua told reporters on a conference call today. “The deal represents Cnooc’s first step into the Latin American market.”

Chinese companies have spent at least $13 billion on energy acquisitions in the last two years. The Bridas stake would be Cnooc’s largest purchase since it paid $2.7 billion for a share in a Nigerian oilfield in 2006. The offer values Bridas’s proven reserves around $10 a barrel, about half of what BP Plc paid Devon Energy Corp. last week for assets in Brazil, the Gulf of Mexico and Azerbaijan, according to Sanford C. Bernstein & Co.

“It’s been some time since Cnooc made a major acquisition,” Wang Aochao, head of China energy research at UOB-Kay Hian in Hong Kong, said by telephone today. “Cnooc is quite cautious in finding assets with real value. This deal seems good in terms of the price and the value it adds to production and reserves.”

Bridas, controlled by Argentine businessman Carlos Bulgheroni, owns a 40 percent stake in Pan American Energy LLC, the country’s largest crude oil exporter, and also has oil and gas assets in Chile and Bolivia, Cnooc said yesterday in a statement to Hong Kong’s stock exchange. BP Plc, Europe’s largest oil company, owns the remainder of Pan American.

Cnooc Reserves

China is the world’s second-biggest energy consumer, after the U.S., and Cnooc estimates the Bridas investment will add 318 million barrels of reserves, an increase of about 12 percent, and also boost its average daily production by 46,000 barrels. Devon’s assets may add 40,000 barrels a day for BP starting next year, based on current production, with “huge potential” for exploration, BP spokesman David Nicholas said March 11.

According to Cnooc’s Web site, the Beijing-based company had total proven reserves of about 2.52 billion barrels of oil equivalent at the end of 2008, and average daily production was 530,728 barrels of oil equivalent.

Pan American Energy was formed in September 1997 through the merger of the Argentine units of Bridas and Amoco Corp., acquired by BP in August 1998. Pan American is the country’s second-biggest producer of crude after Repsol YPF SA. Cnooc was interested in buying a minority stake in the Argentine YPF unit of Repsol, three people familiar with the talks said in July.

‘Good Beachhead’

Bridas represents “a very good beachhead for us to enter Latin America,” Cnooc President Yang Hua said in the statement. The company made “good progress” since stepping up efforts in December 2008 to boost cooperation with foreign countries and companies, Chairman Fu Chengyu said in an interview yesterday.

In August 2005, Cnooc dropped an $18.5 billion offer for Unocal Corp., the largest overseas acquisition attempted by a Chinese company at the time, after meeting resistance from U.S. lawmakers on grounds the takeover would threaten national security. The company was subsequently bought by Chevron Corp.

“Cnooc will have to expand overseas production through acquisitions because its domestic fields are unlikely to be able to help the company reach its output goals for this year,” said Qiu Xiaofeng, an oil analyst at China Merchants Securities Ltd.

Oil Imports

China relied on imports for more than half its crude oil needs last year, with monthly shipments reaching a record 20.9 million tons in December. The country may post a new all-time high for crude imports this year as a resurgent economy drives fuel-demand growth, an estimate from China National Petroleum Corp. showed on Feb. 4.

Bulgheroni has dual Argentine and Italian nationality and resides in Madrid, according to the Web site of the Center for Strategic & International Studies, of which he is a trustee. In addition to being president of Bridas, he is president of Energy Developments and Investments Corporation, which explores for oil and gas in North Africa, Russia, Central Asia and the Middle East, according to the Washington, DC-based CSIS.

About 94 percent of Pan American’s total crude production comes from Argentina’s San Jorge basin, straddling the remote Patagonian provinces of Chubut and Santa Cruz. The basin is home to Cerro Dragon, Argentina’s most productive field. Pan American produces about 17 percent of the nation’s crude and about 15 percent of its gas, according to the company’s Web site.

PetroChina Co. in December won approval from the Canadian government to buy a stake in two Alberta oil-sands projects for C$1.9 billion ($1.86 billion). China Petrochemical Corp. completed its C$8.3 billion acquisition of Addax Petroleum Corp. in August.

JPMorgan Chase & Co. advised Cnooc on the proposed purchase.  (Bloomberg)