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TNK-BP stake acquisition could reduce China’s oil risks, experts say

By Fang Yunyu (Global Times)

08:08, June 05, 2012

A reported plan by China's two largest oil and gas companies to jointly acquire a significant stake in BP's Russian joint venture could help China hedge against oil price risk, experts told the Global Times yesterday.

China Petroleum & Chemical Corporation (Sinopec) and China National Offshore Oil Corporation (CNOOC) are eyeing a combined 50 percent stake in TNK-BP, a JV founded by British oil company BP and the Russian consortium Alfa Access Renova (AAR) in 2003, British newspaper The Daily Mail reported Sunday.

Zeng Sihai, a spokesman for Sinopec, China's second largest oil and gas producer, told the Global Times yesterday that he did not have any information regarding the reported deal.

A member of CNOOC's investor relations staff surnamed Zhou told the Global Times yesterday that the company could not comment on market hearsay.

"The deal, if accomplished, can provide direct energy sources to meet domestic demand, but most importantly it can hedge against oil price risks in future for the country," Lin Boqiang, director of the China Center for Energy Economic Research at Xiamen University, told the Global Times yesterday.

BP's 50 percent stake in the company is worth 14 billion pounds ($21.5 billion), the report said. BP is willing to sell the profitable business, which contributes about 20 percent of its total profits, because it needs money to pay back debts, to invest in projects in Africa and Brazil, and to give out dividends to shareholders, the report said.

Management conflicts between the Russian and British partners are also behind BP's decision to sell, it said.

BP announced Friday in a statement that the company was planning to sell its stake in TNK-BP, and it has already received "unsolicited indications of interest" for the potential acquisition.

However, according to the Financial Times Sunday, AAR said its operating agreement prohibits BP from disclosing any confidential information regarding TNK-BP, which may hinder the sale of BP's stake.

"As the sovereign debt crisis continues in Europe, energy companies are now willing to consider selling parts of their businesses, especially when their capital chain is becoming tight," said Lin, noting that now is "a good time" for Chinese oil companies to buy overseas assets.

On April 30, BP said its first-quarter net profit had declined by 18 percent from a year earlier.

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