July 7 (Bloomberg) -- China Oilfield Services Ltd., a unit of the nation's third-biggest crude producer, agreed to buy Norway's Awilco Offshore ASA for 12.7 billion kroner ($2.49 billion) to increase its rig fleet by 47 percent.

China Oilfield will pay 85 kroner a share in cash for the operator of drilling rigs, according to a statement today. The offer by the unit of China National Offshore Oil Corp. is 19 percent more than the closing price of Awilco's shares July 4. Awilco surged 15 percent to a record in Oslo.

The Chinese purchase of Awilco's fleet comes after average rental rates for jack-up rigs, the most common type for shallow- water drilling, quadrupled in four years to about $200,000 a day, according to ODS-Petrodata. New exploration is being driven by crude's surge to a record $145.85 a barrel this month.

``Awilco's units are modern and basically delivered or coming near to it, so you have instantaneous cash flow,'' Gavin Strachan, an ODS-Petrodata research consultant in Scotland, said in a telephone interview today. ``You make more money by buying newly delivered rigs than by putting in an order for a new rig, because cash flow will be very significant over the next couple of years.

``If you put in an order for an offshore rig today, you'll generally get it delivered in 2011,'' Strachan added.

Drilling Rigs

The Awilco purchase would immediately boost China Oilfield's drilling fleet to 22 units from 15, the Beijing-based company said. Awilco said the combined fleet following the acquisition would be 34 operated platforms, including those under construction.

Awilco has five jack-up units in operation, with three more to be delivered before mid-2009, according to a China Oilfield presentation today. It also has three semi-submersible platforms on order and options to build another two.

The global fleet of offshore rigs currently operating totals 691, of which 418, or 60 percent, are jack-up rigs, Strachan said. Transocean Inc. is the world's largest oil and natural-gas driller, with 138 mobile offshore drilling units and another eight under construction.

The Norwegian company's equipment and technology for offshore drilling are ``a good strategic fit for China Oilfield Services,'' the companies said in a statement. China Oilfield said Awilco operates in areas including Norway, Australia, Vietnam, Saudi Arabia, the U.K. and Libya, and has secured contracts with companies including BP Plc and Repsol YPF SA.

Chinese Waters

Cnooc has been stepping up its drilling off the Chinese coast. In October last year it said it planned to more than double production at the Bohai Bay field to more than 27 million metric tons, or about 542,000 barrels a day, in five to six years as new fields come on stream.

In June 2006, Cnooc's Calgary-based partner, Husky Energy Inc., found a natural gas field in the Pearl River Mouth Basin big enough to supply the nation's needs for four years.

China, the second-largest energy user, has accelerated its search for oil and gas at home and abroad to sustain the fastest growth among the world's 10 biggest economies. Cnooc Ltd., China Oilfield's largest customer, plans to increase capital spending by 44 percent this year to $5.2 billion to expand production.

China Oilfield is seeking assets in Southeast Asia, the Middle East, Africa, North America and Russia, Chief Financial Officer Zhong Hua said on June 3.

Overseas Revenue

Revenue from overseas businesses will rise to 30 percent of overall income in 2010, Company Secretary Chen Weidong said last month. Its overseas businesses accounted for 18.3 percent of total income last year, according to Zhong.

``I think 85 kroner a share is a good price,'' for the Norwegian company, Stian Eliassen, an analyst at Carnegie ASA in Oslo who has an outperform rating on Awilco, said by telephone. ``They're very interested in Awilco's jack-up rigs, seven of which will be available to be leased by clients next year.'' Jack-up platforms have retractable legs that extend to the seafloor.

The offer still requires regulatory approval. Opposition from U.S. lawmakers thwarted a bid by Cnooc in 2005 to buy Unocal Corp., the same year the Pentagon described China, now the biggest exporter to the U.S., as a strategic rival. Chevron Corp. bought Unocal instead for $17.8 billion in August 2005.

The Norwegian Competition Authority said it hasn't yet received an application for the purchase. It needs to review any deal involving companies with sales of more than 50 million kroner in Norway, spokesman Andreas Kjeldsberg Pihl said.

``If we consider that the acquisition will severely limit competition, we'll intervene,'' he said.

Previous Deal

The proposed deal would not be the first acquisition by a Chinese company in Norway. According to the Competition Authority, China National Chemical Corp. bought Rhodia SA's silicon unit, which had a subsidiary in Norway, in October 2006.

Crude oil prices in New York have almost doubled in a year and reached a record $145.85 a barrel on July 3. The contract for August delivery traded at $141.28 on the New York Mercantile Exchange as of 4:17 p.m. in London.

Awilco gained 10.60 kroner to 82.20 kroner, the highest since the shares first started trading in February 2005. That valued the Oslo-based company at 12.3 billion kroner.

Awilco's board has unanimously approved the offer and the deal is expected to close by October, the statement said.

China Oilfield plans to borrow about $2.3 billion from local and overseas banks to fund the acquisition, Zhong said at a news conference in Hong Kong today. The company has no plans to sell shares for the purchase and the cost of borrowing is still being negotiated, he told reporters.

Lehman Brothers Holdings Inc. and JPMorgan Chase & Co. are advising China Oilfield on the offer. Awilco is being advised by Fearnley Fonds ASA and Pareto Securities AS.

To contact the reporter on this story: Marianne Stigset in Oslo at mstigset@bloomberg.net

Last Updated: July 7, 2008 11:30 EDT