China's Offshore Oil Producer Buys Overseas Field Stake

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Last updated at: (Beijing Time) Saturday, March 08, 2003

China's Offshore Oil Producer Buys Overseas Field Stake

The China National offshore Oil Corp Ltd. (CNOOC), China's largest offshore oil producer, has agreed to pay 615 million US dollars to Britain's BG Group for a stake in an oil and gas field in Kazakhstan.

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The China National Offshore Oil Corp Ltd (CNOOC), China's largest offshore oil producer, yesterday agreed to pay US$615 million to Britain's BG Group for a stake in an oil and gas field in Kazakhstan, which boasts one of the largest finds of the past 30 years.

The acquisition marks another stage in the Chinese corporation's overseas expansion campaign. Last year, it spent more than US$1.1 billion on buying reserves in Australia and Indonesia.

Under the latest deal, CNOOC will get 8.33 per cent of the North Caspian Sea project, including the Kashagan oilfield and several other oil-rich geographical structures.

The oilfield may contain reserves of up to 13 billion barrels of oil equivalent.

Wei Liucheng, CNOOC chairman and chief executive officer, said: "This acquisition allows the company to gain a firm foothold in one of the world's most prolific oil and gas basins.?Standard & Poor's yesterday kept its ratings for CNOOC unchanged at BBB after the deal was announced.

Yang Hua, the CNOOC senior vice-president, yesterday told reporters in Hong Kong that the firm's exploration and development costs for the North Caspian Sea project will be between US$2 and US$3 a barrel.

The CNOOC share price was flat at HK$10.90 (US$1.40) yesterday. But yesterday's price was already about 24 per cent higher than at the start of the year and up more than 46 per cent since two years ago, with investors confident that the firm's production will continue to grow over the coming years.

CNOOC earlier vowed to reach an annual production level of between 170 million and 175 million tons of oil in 2005, up from 95.4 million tons in 2001.

Analysts said CNOOC has stuck to its expansion plan of acquiring overseas reserves to meet the target.

Last year, it bought gas fields in Australia and Indonesia, which have boosted its proven reserves by about 45 per cent from 1.8 billion barrels of oil equivalent at the end of 2001.

Mark Qiu, CNOOC's chief financial officer, said the latest transaction "further demonstrates CNOOC's approach of using every opportunity to capture value-enhancing transactions and strengthens the company's long-term growth prospects.

"The estimated low operation costs and long production life are expected to result in strong cashflow for CNOOC and its shareholders for many years to come.?Qiu also said the company currently has sufficient cash resources to finance its acquisition of the stake.

At the same time, the company is still studying whether there is any need to seek further finance for its plans to expand and develop over the next five to 10 years, he added.

The North Caspian Sea project is operated by a world-class consortium of partners, with the Italian group Eni-Agip being the operator with a 16.7 per cent stake. The other partners are ExxonMobil, the Royal Dutch/Shell Group and TotalFinaElf, each with a 16.7 per cent share.

The BG Group, CNOOC, ConocoPhillips and the INPEX Corp will each have an 8.33 per cent stake. Production may start in 2006.

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