China Petroleum and Chemical Corp
), intends to set up a $3 billion worth 50:50 joint venture −
Sinopec International Petroleum E&P Hongkong Overseas Ltd. −
with its parent company China Petrochemical Corp. or Sinopec
Group to take over the oil and gas properties held by the
latter. The move in mainly intended to boost its profitability as
well as extend its portfolio globally. In this regard, Sinopec is
eyeing assets in countries such as Russia, Colombia and
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For the latest purchase agreement, Sinopec will pay $1.5 billion
and will take control of the venture. The deal will boost
Sinopec's proven reserves by 9.1% to 3.1 billion barrels of oil
equivalent (BBoe), and its annual crude production by 11.2% to
365 million barrels.
Sinopec has very few international oil and gas properties and
hence intends to acquire the overseas upstream assets of its
parent company partly to minimize the adverse effect that China's
measures to control fuel price have on its results.
Sinopec Group has already spent $34 billion on several contracts
in the U.K., U.S., Canada, Brazil, Argentina and Australia over
the last three years. The group holds a 76.28% interest in
Sinopec, which took over its parent's 50% share in a deepwater
oil asset - Angola's Block 18 - for $2.46 billion in 2010.
China has a huge energy requirement as it is the world's
second-largest economy. Hence, acquisitions of oil and gas assets
abroad will supply the energy needs of this enormous economy.
In this connection, it is worth mentioning that on Feb 25,
Sinopec inked a $1.02 billion deal with
Chesapeake Energy Corp.
). This gives the second-largest Chinese energy producer a 50%
share in 850,000 acres in the Mississippi Lime play in northern
Again, China's largest offshore oil producer,
) closed its $15.1 billion acquisition agreement with Canada's
Nexen Inc. in February. This deal marks a significant milestone
for CNOOC with its hold over Nexen's biggest reserves in the
Canadian oil sands.
Sinopec currently retains a Zacks Rank #3, which is equivalent to
a short-term Hold rating. However, there is another stock in the
oil and gas industry,
), which holds a Zacks Rank #2 (Buy) and appears more