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Chinese oil companies may shop for assets

By Paul Welitzkin in New York | China Daily USA | Updated: 2017-03-09 11:37

World oil prices have stabilized, and experts believe there could be a new round of merger-and-acquisition activity in the sector with Chinese oil companies being active purchasers.

Oil prices have firmed since the Organization of Petroleum Exporting Countries (OPEC) agreed to production cuts last year.

Gordon Kwan, head of Asian oil and gas research at Nomura Holdings Inc, said that when oil prices are either declining or fluctuating, it is difficult for buyers and sellers to agree on asset valuation.

"Oil prices have converged to trade in a narrow band of $52-$56 (a barrel). This should foster a more agreeable deal-making environment for both the buyer and seller. At the very least, there should be less disputes over asset valuation," he wrote in an email.

Kwan said Chinese oil companies are likely to be on the prowl because the country's domestic oil production is declining.

"Oil is a finite resource and the more you produce, the less you have left unless you find more of it via new field discoveries. The problem with China is that the domestic production increases over the past 10 years are not being matched by new oil-field discoveries," he added.

Song Yen Ling, a senior oil analyst with Platts China Oil Analytics, said in an email that "with prices fairly stable, and companies having gone through the past few years focusing on cost controls, it is possible that we may see Chinese companies on the lookout for assets to acquire again."

Song said domestic production has declined mainly because companies have found it more economical to import crude at current price levels rather than spend resources to keep pumping from mature and aging wells and blocks.

"As crude prices rise, we are likely to see these wells come back online and production recover to levels seen in the last few years," she said.

Kwan believes that all three Chinese oil majors - China National Offshore Oil Corp (CNOOC). PetroChina Co Ltd and Sinopec Group - may be interested in acquiring oil fields around the world.

"If they can't find oil by themselves, Chinese oil companies can always buy oil fields from others willing to sell at the right price. To the Chinese, splashing out money to buy is easier and less risky than gambling on frontier drilling exploration," said Kwan.

"With (US Secretary of State) Rex Tillerson likely to lift sanctions on Russia, China's northern neighbor could see more upstream oil investments to develop oil reserves in JV (joint venture) with Rosneft," said Kwan.

"China is also interested in traditional powerhouses such as Iran, Iraq and UAE (United Arab Emirates), and, of course, trying to grab a stake in the Saudi Aramco IPO (initial public offering)," Kwan said. "If Trump is OK with it, China is also considering acquiring assets in the Permian basin of Texas, following the lead of ExxonMobil's $6.6 billion purchase of Bass Holdings."

The International Energy Agency said in a report released on Tuesday that global oil consumption will grow despite an incresae in electric vehicles and tougher emissions standards.

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