Asian refining giant Sinopec has agreed a $3.1billion deal to take a 33% stake in Apache’s Egyptian oil and gas business, marking the state-owned company’s biggest purchase in the Middle East.
Buying the stake in the operations located in the Western Desert, away from the centers of political unrest in Egypt, will increase Sinopec Group’s annual production by about 9%, according to Bloomberg calculations.
Apache and Sinopec Group will also form a global partnership to develop oil and gas projects, with Apache acting as operator.
Apache, which jumped 3.3.% in post-market trading, will use the proceeds to reduce debt, buy back shares and fund capital spending. The transaction is part of the company’s plan to sell $4 billion in assets by year end.
The deal will boost Sinopec’s daily output by around 130,000 barrels of oil equivalent, and is expected to be completed before the end of the year.
Chinese companies have completed 83 overseas oil and gas purchases worth $100.7 billion in the past five years, according to data compiled by Bloomberg. Cnooc Ltd.’s $15.1 billion acquisition of Canada-based Nexen Inc. early this year was China’s largest overseas acquisition.
The deal, which coincides with a potential move by rival PetroChina into Iraq, signals China’s increasing investment in the region as it secures energy investments.
The Chinese government encourages energy companies to acquire overseas resources to meet the country’s growing energy demand and often asks state-run banks to fund such acquisitions with cheap loans.
China’s crude oil imports may climb 7.3% and account for 58% of the country’s total consumption, China National Petroleum Corp. estimated in a January research report.
PetroChina, China’s biggest oil and gas producer, plans to invest $60 billion on overseas acquisitions in the decade to 2020, raising its overseas production to more than 50% of its total, it’s former chairman Jiang Jiemin said in 2011.
PetroChina is in talks with Exxon Mobile Corp. to jointly develop its West Qurna-1 oilfield in southern Iraq, President Wang Dongjin said in Hong Kong on August 22. A deal may be concluded this year, he said.
“There definitely does seem to be a resurgence in overseas M&A” by Chinese companies, Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein, said today by phone.
“The potential of PetroChina going back into Iraq and this deal in Egypt shows a willingness to take on more risk in this part of the world.”
The Chinese company is aware of the political uncertainties in Egypt and is focused on long-term development in the region, said Wei Fujun, a spokesman at the Sinopec International Petroleum Exploration & Production Corp., the unit making the purchase.
The price of $3.1 billion is “very reasonable,” Wei said by phone.