Weekly Update: Sinochem increases China’s ties with South America

Sinochem made the largest deal of the week by acquiring TEPMA BV from Total in a transaction that may have been worth $440 million. Total omitted to reveal the value of the deal but disclosed that their three divestitures in Colombia over the past year, comprised of two deals to sell interests in the Ocensa pipeline in addition to this one, were worth a total of $1 billion. The only deal of the three in which a value was disclosed was the $281 million sale of a 5% interest in the Ocensa pipeline to Petrominerales for $281 million. Assuming that the sale of the same interest in the pipeline to CEPSA was for the same value, would leave the deal with Sinochem valued at approximately $480 million.

The main asset of TEPMA BV is a 19% interest in the Cusiana field, once the largest oil field in Colombia, residing in the Llanos basin and discovered by BP 20 years ago. At its peak the field was producing 440,000 boe/d but as of today the 19% interest that Sinochem will be acquiring will entitle them to 7,000 boe/d. Colombian hydrocarbon operations are governed largely by operating contracts, which makes conventional analysis of the merits of individual deals misleading to quantify. The most recent incarnation of the contract governing the Cusiana field, ceded operatorship for the Southern portion from BP to Ecopetrol and the northern portion was due to be relinquished to Ecopetrol in 2016 before BP took the decision last year to divest their Colombian operations.

Short or medium term economics of transactions have often been of little concern for the Beijing backed Chinese oil companies, whose primary goal is to secure resources in a wide variety of regions across the globe. The rate and scope of energy acquisitions by Chinese NOCs in the past decade have been constant and varied, but the recent charge in the past couple of years has been the targeting of South American assets. This strategy has been affected by both straight out company to company acquisitions and negotiations via diplomacy direct with foreign governments. Recent large acquisitions have included Sinopec’s $7 billion acquisition of Repsol Brasil, CNOOC’S $3 billion acquisition of a 50% interest in Argentinean company Bridas Corp and Sinochem’s $3 billion acquisition of an interest in the Peregrino field offshore Brazil.

Meanwhile, the Chinese government has negotiated directly with various South American governments to secure oil supplies in exchange for investments or loans at sub market rates. Amongst the largest of these, was a $20 billion loan to Venezuela in 2010, which Chavez welcomed as an opportunity to secure an export route that reduced the dependence of the US as a trading partner. Ecuador has also received substantial investment, despite defaulting on its debt in 2009 the country has since received loans of over $6 billion at interest rates ranging between 6-7%, which is a considerable discount to what would have been possible on the free market.

Shell made an entrance into a new region this week via a farm in with Canadian listed Petromanas Energy. The area in question is Albania, a country more famous for its production of watermelons than oil and gas resources, but Shell will be investing a potential $50 million dollars to gain access to 852,000 acres. Shell had already recently signalled its intention to move into frontier exploration regions with its joint exploration venture with Tullow Oil last month.

In Canada, Sonde Resources divested 24,383 net acres in the Duvernay shale play of Alberta for C$75 million. The acquisition equates to $3,000 per acre and will enable Sonde to book a profit from the acreage of C$73 million. Elsewhere in deals involving shale resources, Blacksands Pacific farmed into 25,000 net acres in the Bakken play of North Dakota for cost carry obligations totalling $100 million.

Looking for previous deals? Check out the Weekly Updates page for archives.

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