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Sinopec Purchase to Bolster Reserves
China Petrochemical Corp (Sinopec), the country's second-largest oil company, looks likely to issue domestic A shares to finance the planned acquisition of China New Star Petroleum, which has been valued by a brokerage at US$2.8 billion, as China Daily reports.
An analyst at European brokerage ING Barings said a preliminary valuation of China New Star was based on a crude oil price of US$20 per barrel, and crude oil and natural gas reserves of about one billion barrels.
China New Star - China's smallest oil and gas producer - has five oil fields in the west, north and northeast of the country, as well as the East China Sea.
Its oil reserve would increase Sinopec's reserves by about one-third upon completion of the acquisition.
Sinopec has an option to acquire China New Star from its parent Sinopec Group. Sinopec had about 3.1 billion barrels of oil and natural gas reserves as of April last year, according to its listing document.
Analysts said the company would likely part-finance the transaction by issuing A shares.
Financing options include all-cash payment, part-payment via the issuance of Hong Kong-traded H shares or domestically traded�� yuan-denominated A shares.
"I think the issuance of H shares is the least likely option because its shares are trading at substantially below their initial public offering price," another analyst at an United States-based brokerage said.
Sinopec vice-president Zhang Jiaren was quoted Monday as saying the company was studying the feasibility of issuing A shares for future financing, and was aiming to complete the China New Star acquisition this year.
Mr Zhang also said the company planned to invest 12 billion yuan (US$1.45 billion) to explore and develop oil fields in western China.
The company is in talks with fellow oil giant CNOOC to set up an equal joint-venture project to explore opportunities in offshore natural gas in the East China Sea.
The ING analyst said the estimated natural gas reserves amounted to less than 10 per cent of Sinopec's reserves.
Meanwhile, Sinopec Monday night said it would cut its staff count by 27,000 this year through retirement, voluntary resignation and redundancy.
The job cuts will cost the company an estimated 1.02 billion yuan in compensation but will bring in savings of 350 million yuan annually.
Last year, the company said it would cut 100,000 workers, or about 20 per cent of its workforce, in five years.
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