Chinese oil company Sinopec boosts postion in Brazil

4 October 2010

Madrid, Spain, 4 Oct – The partnership between Chinese state oil company Sinopec and Spain’s Repsol in Brazil gives the Chinese company a key position in the Brazilian energy sector, which it already has in Sao Tome and Principe and is targeting in Angola.

In one of the oil deals of the year, the China Petrochemical Corp. (Sinopec) announced Friday that it would pay US$7.1 billion for a 40 percent stake in the Brazilian unit of Repsol YPF, which is very active near the Tupi field, where in 2008 one of the biggest ever oil strikes was made.

“This is a key deep water basin and there are lots of developments underway. Sinopec has established a good position, but the price paid is very high. This shows the importance China gives to securing oil resources abroad,” analyst Neil Beveridge, of Sanford C. Bernstein & Co., told the Financial Times.

According to Beveridge, Repsol’s assets in Brazil, in the basins of Santos, Campos and Espírito Santo, provide reserves of around 1.2 billion barrels, which means that Sinopec paid US$15 per barrel of oil.

Up until 2019, Repsol planned to invest US$14 billion in the development of these assets.

“South America seems to be a focus area at the moment. The focus has moved on from Africa and all of this is part of China’s desire for energy security and exceptional growth in demand for oil,” the analyst said.

The implicit asset value in the deal led to a rise in share price of other oil companies with a presence in the area, such as Portugal’s Galp Energia, which saw its shares rise by 7.8 percent Friday.

“This provides a robust valuation to reserves in Brazil,” Peter Hitchens, analyst and Panmure Gordon & Co., told the Bloomberg news agency.

For analysts at Portugal’s BPI bank, the amount paid by Sinopec is also “surprisingly high.”

According to Spanish daily newspaper El País, Repsol, “found the partner it was looking for,” and which “secures the cash needed to explore the offshore oil fields in which it has a stake,” and it is now part of a new “energy giant in Latin America.”

Other Chinese oil companies such as CNOOC and Sinochem have also been taking stakes in oil blocks in Brazil as well as in Argentina.

The amount paid for the partnership with Repsol is close to the US$7 billion that Sinopec paid in June of last year for Addax Petroleum.

This operation gave Sinopec control of half of the four blocks of the Nigeria/Sao Tome and Principe joint development zone (JDZ) and a stake in a third block, as well as assets in Iraq and other countries.

According to analyst Ana Cristina Alves, Sinopec will soon have a unique opportunity to expand its oil assets in Angola, with a new tender for oil blocks, due to take place at the beginning of next year.

For this much-delayed tender, the Chinese state oil company is pre-qualified as an operator and Sonangol Sinopec International (SSI) as a non-operator, but Addax is also qualified, which “increases the possibilities of securing assets as an operator in Angola,” the analyst wrote in a recent article in the China Monitor bulletin, from the Centre for Chinese Studies of South Africa’s Stellenbosch University.

China has been increasing its purchase of oil from Angola, which in the first half of this year was Beijing’s main supplier, but the assets owned by Chinese oil companies in the country are still modest.

In May 2006, SSI was granted three stakes in some of the most disputed deep water blocks: 20 percent of block 15/06, 27.5 percent of 17/06 and 40 percent of 18/06.

In 2004, it was granted half of block 18, an equal stake to the operator, BP.

Over the years the Angolan oil industry has attracted large multinational companies from the sector, thanks to low operating costs and a high exploration success rate. (macauhub)