China Petroleum & Chemical Corp.
), aka Sinopec, intends to acquire international upstream oil and
gas assets from its parent company, China Petrochemical Corp., or
Sinopec Group, in order to spread its footprint globally. In this
regard, Sinopec is eyeing assets in countries such as the U.K.,
Russia, Colombia and Kazakhstan.
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The transaction -- expected to occur in April this year --
would position Sinopec on the same platform with other
international energy giants like
Royal Dutch Shell Plc
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.
Sinopec has very few international oil and gas assets 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.
China has a huge energy requirement being the world's
second-largest economy. In December 2012, Sinopec Group acquired
a 49% stake in the U.K. North Sea oil and gas assets from
Talisman Energy Inc.
) for a total consideration of $1.5 billion. In April 2012, it
purchased five U.S. assets from
Devon Energy Corp.
) for $2.44 billion.
The Chinese energy companies have moved more carefully after
CNOOC's attempt to acquire U.S.-based exploration and production
company Unocal for $18.5 billion was disappointed by a political
backlash eight years back. The deal was rejected by U.S.
lawmakers on fears of disturbing national security.
Notably, China's largest offshore oil and gas producer by
) has cut a deal in July last year to purchase Canadian energy
) for approximately $15.1 billion in cash. The deal is the
country's biggest foreign takeover so far. The acquisition of
Nexen is in sync with the present strategy of Chinese biggies to
make a deeper international foray in order to meet domestic
Sinopec retains a Zacks Rank #3 (Hold). Longer term, we maintain
our Neutral recommendation for the company.