China oil firms need more bite in foreign takeovers
Editor's Choice News Article | Reuters.co.uk
By Charlie Zhu
SINGAPORE (Reuters) - China's state oil majors and their bureaucrat minders in Beijing must steel their nerves, open their purse strings and bet on sustained high oil prices if they hope to beat global rivals for coveted overseas energy assets.
Chinese oil firms have suffered a string of setbacks in its overseas merger and acquisition bids in the past three years, dealing a blow to the No. 2 consumer's quest for oil and gas reserves that would help it secure long-term supply.
And after CNOOC recently lost in its $18.5 billion (10.2 billion pound) bid for U.S. energy producer Unocal Corp. to Chevron Corp., another Chinese firm CNPC is vying with India's Oil and Natural Gas Corp. for PetroKazakhstan.
Politics have been cited as one reason for the failures.
But some analysts said the missed opportunities expose Chinese companies' lack of experience and tenacity in open-market takeovers, where they are stripped of the bilateral political incentives that have aided their acquisitions thus far.
Chinese firms could falter again in upcoming auctions unless they improve their tactics and be more willing to take risks for the best global assets in a climate of ever-rising oil prices, they said.
"Chinese companies have had a reputation in the past of always looking to pay as little as possible and therefore having a preference for assets which are not highly competitive," said Gavin Thompson, China country manager for Wood Mackenzie.
"Chinese companies generally do not feel comfortable in open biddings."
China National Petroleum Corp., Sinopec Group, CNOOC and Sinochem have bought bits and pieces of assets around the world since China became a net crude oil importer in 1993.
Most of the acquisitions were made in less competitive situation in countries shunned by Western oil firms such as Sudan and Myanmar. The relatively cheap assets were acquired through government-to-government talks, not public auctions.
"The culture the Chinese are using towards acquisitions disregards the standard rule of the M&A game. They try to integrate politics into commercial transactions. It does not work everywhere," said a banker at an global investment bank.
Driven by surging demand in the world's second-largest oil market, Chinese companies must now hunt for larger, more hotly contested assets, including foreign-listed corporations, to gain managerial expertise and technology.
SLOW MOVES
Some of the setbacks suffered by Chinese firms, such as those in Russia and the Unocal bid, were largely due to opposition from politicians alarmed by China's growing economic muscle. CNOOC did not win the Unocal bid despite offering more than rival bidder Chevron after the U.S. Congress voted to significantly delay the deal.
But other than its limited political clout in the major countries, the flops are also due to to execution errors or grossly conservative oil price forecasts that forced them to drop plans for assets deemed too expensive, or to put in low bids.
Although international crude oil is trading just under record-highs of above $67 a barrel, Chinese oil companies are using an oil price assumption of around $27 for their 2005 budget, below $30 used by some oil majors, analysts say.
Some analysts attribute the low price assumption to state ownership, which provides little incentives for company executives to take commercial risks.
"Nobody at the state-owned Chinese oil companies wants to make big mistakes. They all want to be political stars. They don't want to be the one accused of buying oil at a peak," said Gordon Kwan, China energy analyst at CLSA.
"They need to learn how to value companies."
CNOOC might have a better chance of winning over the Unocal board from the outset if it had put in a knockout bid in June, and block Chevron from coming back with an improved offer, some bankers and analysts said.
CNOOC Chairman Fu Chengyu, an ambitious oilman, missed a golden opportunity to submit an early bid in April, after CNOOC's independent directors rejected the proposal as they were informed only at the eleventh hour, people close to the situation said.
As a result, Fu could only get back to Unocal two months later with an all-cash bid plus a hefty $500 million fee in a futile attempt to to foil the Chevron deal.
The same tardiness could cloud China's bid for PetroKazakhstan, a $3.3 billion Canada-based firm with all its assets in central Asia.
CNPC, parent of PetroChina, looked at buying PetroKazakhstan two years ago -- when oil prices started its relentless climb -- but abandoned the idea partly on worries about oil price falls, a source familiar with the situation said. PetroKazakhstan shares have soared 250 percent in the past two years.
Chinese state oil firms put off a plan to acquire Canadian oil producer Husky Energy several years ago for similar reasons, sources said.
"Chinese companies need to learn how to manoeuvre smartly in a takeover battle. They also need to apply higher long-term oil price assumption because we are in a new era of oil prices," CLSA's Kwan said.
By Charlie Zhu
SINGAPORE (Reuters) - China's state oil majors and their bureaucrat minders in Beijing must steel their nerves, open their purse strings and bet on sustained high oil prices if they hope to beat global rivals for coveted overseas energy assets.
Chinese oil firms have suffered a string of setbacks in its overseas merger and acquisition bids in the past three years, dealing a blow to the No. 2 consumer's quest for oil and gas reserves that would help it secure long-term supply.
And after CNOOC recently lost in its $18.5 billion (10.2 billion pound) bid for U.S. energy producer Unocal Corp. to Chevron Corp., another Chinese firm CNPC is vying with India's Oil and Natural Gas Corp. for PetroKazakhstan.
Politics have been cited as one reason for the failures.
But some analysts said the missed opportunities expose Chinese companies' lack of experience and tenacity in open-market takeovers, where they are stripped of the bilateral political incentives that have aided their acquisitions thus far.
Chinese firms could falter again in upcoming auctions unless they improve their tactics and be more willing to take risks for the best global assets in a climate of ever-rising oil prices, they said.
"Chinese companies have had a reputation in the past of always looking to pay as little as possible and therefore having a preference for assets which are not highly competitive," said Gavin Thompson, China country manager for Wood Mackenzie.
"Chinese companies generally do not feel comfortable in open biddings."
China National Petroleum Corp., Sinopec Group, CNOOC and Sinochem have bought bits and pieces of assets around the world since China became a net crude oil importer in 1993.
Most of the acquisitions were made in less competitive situation in countries shunned by Western oil firms such as Sudan and Myanmar. The relatively cheap assets were acquired through government-to-government talks, not public auctions.
"The culture the Chinese are using towards acquisitions disregards the standard rule of the M&A game. They try to integrate politics into commercial transactions. It does not work everywhere," said a banker at an global investment bank.
Driven by surging demand in the world's second-largest oil market, Chinese companies must now hunt for larger, more hotly contested assets, including foreign-listed corporations, to gain managerial expertise and technology.
SLOW MOVES
Some of the setbacks suffered by Chinese firms, such as those in Russia and the Unocal bid, were largely due to opposition from politicians alarmed by China's growing economic muscle. CNOOC did not win the Unocal bid despite offering more than rival bidder Chevron after the U.S. Congress voted to significantly delay the deal.
But other than its limited political clout in the major countries, the flops are also due to to execution errors or grossly conservative oil price forecasts that forced them to drop plans for assets deemed too expensive, or to put in low bids.
Although international crude oil is trading just under record-highs of above $67 a barrel, Chinese oil companies are using an oil price assumption of around $27 for their 2005 budget, below $30 used by some oil majors, analysts say.
Some analysts attribute the low price assumption to state ownership, which provides little incentives for company executives to take commercial risks.
"Nobody at the state-owned Chinese oil companies wants to make big mistakes. They all want to be political stars. They don't want to be the one accused of buying oil at a peak," said Gordon Kwan, China energy analyst at CLSA.
"They need to learn how to value companies."
CNOOC might have a better chance of winning over the Unocal board from the outset if it had put in a knockout bid in June, and block Chevron from coming back with an improved offer, some bankers and analysts said.
CNOOC Chairman Fu Chengyu, an ambitious oilman, missed a golden opportunity to submit an early bid in April, after CNOOC's independent directors rejected the proposal as they were informed only at the eleventh hour, people close to the situation said.
As a result, Fu could only get back to Unocal two months later with an all-cash bid plus a hefty $500 million fee in a futile attempt to to foil the Chevron deal.
The same tardiness could cloud China's bid for PetroKazakhstan, a $3.3 billion Canada-based firm with all its assets in central Asia.
CNPC, parent of PetroChina, looked at buying PetroKazakhstan two years ago -- when oil prices started its relentless climb -- but abandoned the idea partly on worries about oil price falls, a source familiar with the situation said. PetroKazakhstan shares have soared 250 percent in the past two years.
Chinese state oil firms put off a plan to acquire Canadian oil producer Husky Energy several years ago for similar reasons, sources said.
"Chinese companies need to learn how to manoeuvre smartly in a takeover battle. They also need to apply higher long-term oil price assumption because we are in a new era of oil prices," CLSA's Kwan said.
posted by Marcel at 3:46 AM
0 Comments:
Post a Comment
<< Home