Chinese Company Buys Kazakh Oil Interests for $4 Billion
http://www.nytimes.com/2005/08/22/business/worldbusiness/22cnd-oil.html
August 22, 2005
Chinese Company Buys Kazakh Oil Interests for $4 Billion
By KEITH BRADSHER
HONG KONG, Aug. 22 - China's biggest state-owned oil company agreed today to pay $4.18 billion for a Canadian oil company with substantial reserves in Kazakhstan, China's largest foreign acquisition yet.
The China National Petroleum Corporation outbid India's state-owned Oil and Natural Gas Corporation in reaching a deal to acquire PetroKazakhstan. The bidding underlined growing competition for oil resources by the world's two most populous countries, both of which are rapidly increasing their oil imports.
PetroKazakhstan's acceptance of the C.N.P.C. bid is a consolation prize for China's oil industry nearly three weeks after another state-controlled Chinese company, Cnooc Ltd., withdrew its $18.5 billion offer for Unocal following strong opposition in the United States Congress.
Cnooc and the third of China's three state-owned oil giants, Sinopec, had also tried and failed to buy into Kazakhstan's huge Kashagan field two years ago.
Today's transaction dwarfs what had been the biggest overseas Chinese acquisition so far, Lenovo's purchase of I.B.M.'s personal computer unit for $1.25 billion, completed in May.
Shares of PetroKazakhstan opened up $9.10, or 20 percent, to $54.50 in New York trading this morning.
PetroKazakhstan, based in Calgary, Alberta, but managed from Windsor, England, is a considerably smaller company than Unocal, and it does not have Unocal's extensive natural gas reserves or Unocal's reputation for high technology. It nonetheless commanded a price of $55 a share in today's deal, a premium of 21.1 percent to the stock's closing price on the New York Stock Exchange on Friday.
In the oil industry, "China has consistently been willing to overpay for assets; it's more of a security issue for them than the absolute price," said John Kuzmik, a partner and China specialist at Baker Botts, a big Houston energy law firm. India's Oil and Natural Gas Corporation reportedly bid $3.6 billion.
PetroKazakhstan's main asset lies in its full ownership of one oil field, Kumkol South, and half-ownership of two smaller ones, Kumkol North and Germunaigazof, and in the company's ability to develop those fields even though they are locked in the heart of Central Asia. "It is a jewel; you look at the way they increased production," said Vincent Noual, a specialist in Central Asian oil in the Geneva offices of IHS Energy, a big consulting firm.
PetroKazakhstan has had a series of legal skirmishes with Lukoil of Russia, its main partner in the oil fields. Lukoil's main pipeline from Kazakhstan into Russia is already full, but C.N.P.C. is expected to finish at the end of this year a pipeline from Kazakhstan into western China.
The pipeline was originally planned to carry oil from other Chinese-owned oil fields in Kazakhstan, but will have plenty of extra capacity to carry oil from PetroKazakhstan as well, Mr. Noual said.
Today's deal, announced before the opening of trading in New York, represents a huge payday for PetroKazakhstan's investors and the company's chief executive, Bernard Isautier.
PetroKazakhstan used to be owned by Hurricane Hydrocarbons, which was bankrupted in 1999 by low oil prices. But the company still held one superb investment: its stakes in the Kazakh oil fields, purchased for just $120 million in 1996 when Hurricane bought Yuzhneftegaz, a Kazakh state-owned oil company.
After the bankruptcy filing, Mr. Isautier joined the business, led the company out of bankruptcy, bought 88 percent of a large Kazakh refinery for $51 million, and began investing $143 million to develop the oil fields.
As oil prices soared and the value of the Kazakh oil fields soared with them, PetroKazakhstan's relations with the Kazakh government deteriorated. The government and the company have been locked in extensive legal battles over issues like the company's flaring burning off -- of natural gas, which the government wants to see shipped to markets instead.
The Kazakh and Chinese governments have close relations, however, as they have both suppressed Islamic fundamentalism along their long common border.
Citigroup advised C.N.P.C. on the transaction, and has agreed to provide C.N.P.C. with a letter of credit for the entire value of the deal. C.N.P.C., owned by the state, will not be borrowing any money from the Chinese government.
PetroKazakhstan was advised by Goldman Sachs.
Cnooc's plan to finance much of its bid with borrowings from a government-controlled bank had fanned opposition to that deal in Congress over the summer.
Today's complex deal has an unusual feature that will allow Mr. Isautier, 62, to remain active in Central Asian oil deals. He had announced in May that he planned to retire this autumn, and the company disclosed in late June that it had been approached by potential buyers.
C.N.P.C. agreed to pay $54 in cash for each share and put $76 million, worth another $1 a share, into a new company that is to be spun off to PetroKazakhstan shareholders and led by Mr. Isautier. The new company will pursue oil and gas deals in Central Asia except in Kazakhstan, and can seek a public listing with C.N.P.C.'s approval, PetroKazakhstan said in a statement.
The deal is subject to approval by two-thirds of PetroKazakhstan's shareholders at a meeting to be held sometime in October. PetroKazakhstan agreed to pay a breakup fee of $125 million to C.N.P.C. if PetroKazakhstan later accepts a higher offer.
August 22, 2005
Chinese Company Buys Kazakh Oil Interests for $4 Billion
By KEITH BRADSHER
HONG KONG, Aug. 22 - China's biggest state-owned oil company agreed today to pay $4.18 billion for a Canadian oil company with substantial reserves in Kazakhstan, China's largest foreign acquisition yet.
The China National Petroleum Corporation outbid India's state-owned Oil and Natural Gas Corporation in reaching a deal to acquire PetroKazakhstan. The bidding underlined growing competition for oil resources by the world's two most populous countries, both of which are rapidly increasing their oil imports.
PetroKazakhstan's acceptance of the C.N.P.C. bid is a consolation prize for China's oil industry nearly three weeks after another state-controlled Chinese company, Cnooc Ltd., withdrew its $18.5 billion offer for Unocal following strong opposition in the United States Congress.
Cnooc and the third of China's three state-owned oil giants, Sinopec, had also tried and failed to buy into Kazakhstan's huge Kashagan field two years ago.
Today's transaction dwarfs what had been the biggest overseas Chinese acquisition so far, Lenovo's purchase of I.B.M.'s personal computer unit for $1.25 billion, completed in May.
Shares of PetroKazakhstan opened up $9.10, or 20 percent, to $54.50 in New York trading this morning.
PetroKazakhstan, based in Calgary, Alberta, but managed from Windsor, England, is a considerably smaller company than Unocal, and it does not have Unocal's extensive natural gas reserves or Unocal's reputation for high technology. It nonetheless commanded a price of $55 a share in today's deal, a premium of 21.1 percent to the stock's closing price on the New York Stock Exchange on Friday.
In the oil industry, "China has consistently been willing to overpay for assets; it's more of a security issue for them than the absolute price," said John Kuzmik, a partner and China specialist at Baker Botts, a big Houston energy law firm. India's Oil and Natural Gas Corporation reportedly bid $3.6 billion.
PetroKazakhstan's main asset lies in its full ownership of one oil field, Kumkol South, and half-ownership of two smaller ones, Kumkol North and Germunaigazof, and in the company's ability to develop those fields even though they are locked in the heart of Central Asia. "It is a jewel; you look at the way they increased production," said Vincent Noual, a specialist in Central Asian oil in the Geneva offices of IHS Energy, a big consulting firm.
PetroKazakhstan has had a series of legal skirmishes with Lukoil of Russia, its main partner in the oil fields. Lukoil's main pipeline from Kazakhstan into Russia is already full, but C.N.P.C. is expected to finish at the end of this year a pipeline from Kazakhstan into western China.
The pipeline was originally planned to carry oil from other Chinese-owned oil fields in Kazakhstan, but will have plenty of extra capacity to carry oil from PetroKazakhstan as well, Mr. Noual said.
Today's deal, announced before the opening of trading in New York, represents a huge payday for PetroKazakhstan's investors and the company's chief executive, Bernard Isautier.
PetroKazakhstan used to be owned by Hurricane Hydrocarbons, which was bankrupted in 1999 by low oil prices. But the company still held one superb investment: its stakes in the Kazakh oil fields, purchased for just $120 million in 1996 when Hurricane bought Yuzhneftegaz, a Kazakh state-owned oil company.
After the bankruptcy filing, Mr. Isautier joined the business, led the company out of bankruptcy, bought 88 percent of a large Kazakh refinery for $51 million, and began investing $143 million to develop the oil fields.
As oil prices soared and the value of the Kazakh oil fields soared with them, PetroKazakhstan's relations with the Kazakh government deteriorated. The government and the company have been locked in extensive legal battles over issues like the company's flaring burning off -- of natural gas, which the government wants to see shipped to markets instead.
The Kazakh and Chinese governments have close relations, however, as they have both suppressed Islamic fundamentalism along their long common border.
Citigroup advised C.N.P.C. on the transaction, and has agreed to provide C.N.P.C. with a letter of credit for the entire value of the deal. C.N.P.C., owned by the state, will not be borrowing any money from the Chinese government.
PetroKazakhstan was advised by Goldman Sachs.
Cnooc's plan to finance much of its bid with borrowings from a government-controlled bank had fanned opposition to that deal in Congress over the summer.
Today's complex deal has an unusual feature that will allow Mr. Isautier, 62, to remain active in Central Asian oil deals. He had announced in May that he planned to retire this autumn, and the company disclosed in late June that it had been approached by potential buyers.
C.N.P.C. agreed to pay $54 in cash for each share and put $76 million, worth another $1 a share, into a new company that is to be spun off to PetroKazakhstan shareholders and led by Mr. Isautier. The new company will pursue oil and gas deals in Central Asia except in Kazakhstan, and can seek a public listing with C.N.P.C.'s approval, PetroKazakhstan said in a statement.
The deal is subject to approval by two-thirds of PetroKazakhstan's shareholders at a meeting to be held sometime in October. PetroKazakhstan agreed to pay a breakup fee of $125 million to C.N.P.C. if PetroKazakhstan later accepts a higher offer.
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