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People's Daily Online>>China Business

Sinopec's 1st foray into shale

By Richard Fu (Shanghai Daily)

10:05, January 05, 2012

China Petrochemical Corp has made its first foray into American shale by paying US$2.2 billion for a one-third stake in five emerging oil fields operated by Devon Energy Corp.

The move by Sinopec Group, as China Petrochemical is known, is the latest effort by Chinese companies to gain critical know-how on extracting oil and gas from shale rock formations so that they can unlock similar resources at home. Devon is one of the first companies to economically extract gas from shale fields - a lucrative new oil source.

As part of the investment, Sinopec will pay US$1.6 billion to drill wells in the five projects in Alabama, Ohio, Michigan and elsewhere, Devon said late on Tuesday.

Other Chinese state oil majors, and also European energy peers, have invested in North American shale. CNOOC Ltd, China's third-largest oil firm, has acquired stakes in several shale leases in Texas, Colorado and Wyoming in 2010 and 2011 from Chesapeake Energy Corp, which uses the Chinese funding to monetize its asset.

"Unlike companies like Chesapeake who need joint ventures to fund development activity, Devon isn't in dire need of the proceeds," Sanford C. Bernstein analysts said in a note, adding the deal allows Devon to seek exposure to new projects with less risk.

Sinopec's foray also underlines the ambitions of Chairman Fu Chengyu in overseas mergers and acquisitions. Fu, who formerly headed CNOOC, has led a spending spree on energy assets in countries from Australia to Brazil since he took the Sinopec job last year.

Fu was also behind CNOOC's 2005 bid to buy American oil producer Unocal Corp that failed after the US government blocked the transaction for political reasons.

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