Angola and Sao Tome and Principe gain stature in China’s energy policy

24 August 2009

Macau, China, 23 Aug – Angola and Sao Tome and Principe have boosted their importance for China’s external energy policy through purchases being made by Chinese state-owned oil companies, taking advantage of the fall in asset prices.

The purchase of Addax by Sinopec, approved by Beijing this month, gives the Chinese oil company control of half of the four blocks in the Sao Tome and Principe-Nigeria joint development zone (JDZ) and could boost its development, according to analysts Samuel Ciszuk and Tom Grieder, of Petroleum World magazine.

“Sinopec’s purchase of Addax should speed up exploration in the JDZ in the waters of Sao Tome and Prinicipe,” in a region of the Gulf of Guinea which “will require significant investment and is therefore more suited to development by a state-owned company with deep pockets,” said the North American analysts.

With this purchase, the Chinese oil company becomes the “main player in the Sao Tomean oil sector” and will have “considerable influence over how potential commercial reserves are developed,” they added.

Last week Sinopec announced that the first drilling operations in Block 2 (Bomu-1) would take place before the end of August, with the Sedco-702 rig, to a total depth of 3,536 metres.

The results should be available by the last quarter of this year.

Despite the absence of diplomatic relations between China and Sao Tome and Principe, which recognizes Taiwan, Sinopec is represented in the Sao Tomean capital and has been closely following the bidding process for blocks in the Sao Tomean exclusive economic zone, which should begin in November.

With the purchase of Addax, it will operate two of the four JDZ blocks (2 and 4), as well as being involved in block 1, operated by North American Chevron, and block 3 (Anadarko).

This wave of purchases by Chinese state-owned oil companies also includes Angola, where Sinopec and CNOOC International have bought part of a stake in Block 32, owned by Marathon oil, the fourth largest oil producer, operated by Total (30 percent).

The fifty-fifty partnership between the two oil companies, will acquire 20 percent of the block, paying around US$1.3 billion, with Marathon keeping a 10 percent stake in the consortium.

“We are pleased that CNOOC has taken this rare opportunity to purchase this stake. Since we have been on the stock exchange, we have been implementing a policy of costs and value assessment,” said the oil company’s president, Yang Hua.

With a total area of 5,090 square kilometres, 150 kilometres from the Angolan coast, Block 32 is considered to be rich in oil and gas, and contains some of the country’s most promising oil developments, such as Gindungo, Canela and Gengibre.

For the purchase of Addax, Sinopec will pay US$7.5 billion, the biggest purchase to date by a foreign company, in a deal which includes assets in the JDZ and also Iraq (Kurdistan).

Petroleum World’s analysts say that the deal reflects the “aggressive global acquisition strategy launched by Chinese state-owned oil companies in the wake of the financial crisis, designed to boost their oil reserves and production and consolidate their global asset portfolio in high potential markets.”

In this way Sinopec would increase its upstream presence (exploration and production) and would be better able to integrate its operations, as well as reducing its vulnerability to oil price volatility. It would also gain valuable insight into ultra-deep water drilling which could be useful for projects in the South China Sea, they said.

Currently Sinopec’s core operation is refining, for which it is 70% dependent on imports.

The Sinopec-Addax deal, say analysts Samuel Ciszuk and Tom Grieder, “serves China’s wider energy policy objectives.” (macauhub)