Sinopec Pays $1.2 Billion for Lukoil Stake in Kazakhstan Assets

Apr 15, 2014 9:41 pm ET

April 16 (Bloomberg) -- China Petroleum & Chemical Corp., Asia’s biggest refiner, agreed to pay Russia’s OAO Lukoil about $1.2 billion to take control of assets in Kazakhstan.

The Beijing-based company known as Sinopec agreed to buy Lukoil’s 50 percent of Caspian Investment Resources Ltd., which holds stakes in four projects in the central Asian nation. Sinopec and its parent already own the other half of the company via a joint venture.

The deal will give Sinopec additional hydrocarbon production of 10.2 million barrels of oil equivalent, as of 2013, Russia’s second-largest oil producer said yesterday in a statement. The purchase highlights the push by China, the world’s biggest energy consumer, to secure diverse energy assets abroad to meet rising demand at home.

“While there has been speculation of reduced interest in M&A by Chinese oil majors given a more uncertain commodity price outlook, this acquisition confirms China’s interest in acquiring producing assets at attractive valuation levels,” Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co., said yesterday by phone.

Sinopec gained 1.2 percent to HK$6.97 in Hong Kong trading as at 9:36 a.m. local time, compared with the 0.5 percent gain in the benchmark Hang Seng Index.

State-owned Sinopec said in March last year it would form a $3 billion joint venture with its parent China Petrochemical Corp. to replace dwindling overseas reserves with oil and gas assets in Kazakhstan, Colombia and Russia.

Regulatory Approval

Sinopec’s Beijing-based spokesman could not be reached for comment.

The deal is subject to regulatory approval by Kazakh authorities and is expected to be completed before the end of the year, Lukoil said.

“Most Caspian Investment assets are in a period of falling production, while the costs have been growing quickly,” Ildar Davletshin, an oil and gas analyst at Renaissance Capital in Moscow, said yesterday by e-mail. “It was good for Lukoil to sell the stake to its partner Sinopec, which could offer a more attractive price being a strategic investor.”

Lukoil sold 50 percent of Caspian Investments to a company controlled by India’s Lakshmi Mittal and Oil & Natural Gas Corp. for $980 million in 2007. The Chinese joint venture then bought that stake in 2010, after Lukoil waived its right of first refusal.