China Petrochemical Corp., the country’s second-largest oil and gas producer, will invest $7.1 billion in Repsol YPF SA’s Brazilian unit as the Spanish oil company raises funds to develop offshore projects.
Sinopec Group, as the company is known, will buy new shares in the Brazilian unit and will hold 40 percent of that division after the capital increase, Madrid-based Repsol said today in a statement. Shares in Repsol, which previously planned an initial public offering of the unit, jumped to a two-year high.
The acquisition is the second-largest overseas purchase by a Chinese company as the world’s biggest energy consumer snaps up fields to meet surging demand. Repsol has stakes in blocks in Brazil’s Santos and Espirito Santo basins and plans to invest as much as $14 billion there through 2019. It estimates the Guara and Carioca fields may hold as much as 3 billion barrels.
“China’s increased reliance on imported oil is prompting state companies to accelerate the hunt for resources globally,” said Wang Aochao, head of energy research at UOB-Kay Hian Ltd. in Shanghai. “The trend is set to continue as the country’s fast economic growth won’t stop.”
Repsol climbed 5 percent to close at 19.83 euros in Madrid, a two-year high, giving the company a market value of 24 billion euros ($33 billion).
The valuation of the transaction announced today is “surprisingly high,” Banco BPI SA analysts Bruno Silva, Flora Trindade and Gonzalo Sanchez-Bordona wrote in a research note. They have a “buy/accumulate” rating on Repsol shares.
Sinopec Group’s investment in Repsol’s Brazilian unit is China’s largest overseas oil deal since the C$8.3 billion ($8 billion) purchase of Addax Petroleum Corp. Sinopec Group bought Addax last year to gain oil reserves in Iraq’s Kurdistan and West Africa.
Cnooc Ltd., China’s biggest offshore oil explorer, agreed in March to buy a 50 percent stake in Argentine producer Bridas Corp. for $3.1 billion to meet demand in the world’s fastest- growing major economy. PetroChina Co. in December won approval from the Canadian government to buy a stake in two Alberta oil- sands projects for C$1.9 billion.
Statoil ASA, Norway’s largest oil and natural gas company, in May agreed to sell a 40 percent stake in the Brazilian offshore Peregrino field to China’s Sinochem Group for $3.07 billion in cash.
Repsol, Spain’s biggest oil company, had also considered a plan to sell about 40 percent of the Brazilian business through an IPO. Repsol now will not be selling shares in the Brazilian unit to the public, Madrid-based spokesman Kristian Rix said.
“For us, Brazil was way too large,” Repsol’s Chief Operating Officer Miguel Martinez said in an interview on Bloomberg Television. “Obtaining a partner was a move that was necessary.” Repsol and Sinopec may work together in other areas in the future, he said.
Since 2007, Repsol and partners BG Group Plc and Brazil’s Petroleo Brasileiro SA have found hydrocarbons in the offshore Carioca, Guara and Iguacu fields in the Santos Basin’s BM-S-9 block. They are ultra-deep deposits beneath a salt layer under the seabed.
Petrobras, as the Brazilian state-controlled company is known, estimated in November 2007 that the Santos Basin’s pre- salt Tupi field may contain as many as 8 billion barrels of oil, the largest find in the Americas since Mexico’s Cantarell field in 1976. Repsol doesn’t own a stake in Tupi.
The investment by Sinopec comes after Petrobras last week completed the world’s largest share sale, raising about $70 billion.
Shares of other energy companies with stakes in Brazilian offshore projects also advanced today after the Sinopec investment in the Repsol unit was announced. Galp Energia SGPS SA rose as much as 7.8 percent in Lisbon, while BG Group Plc climbed as much as 5.8 percent in London.
“This puts a hefty valuation on reserves in Brazil,” said Peter Hitchens, an analyst at Panmure Gordon & Co. in London. “It could read through into BG’s assets.”
Repsol wants to invest in exploration in Brazil’s offshore Santos Basin and elsewhere to increase reserves and output, while trying to reduce exposure to mature fields in Argentina. The company forecasts annual production growth of as much as 4 percent through 2014 as projects in Brazil and Peru come on stream. Repsol plans to invest a total of 28.5 billion euros in the period.
Oil and gas production at Repsol’s upstream division, which doesn’t include Argentine unit YPF, was unchanged from a year earlier at 340,000 barrels of oil equivalent a day in the second quarter. Output from Buenos Aires-based YPF, of which Repsol owns 84 percent, fell 7 percent to 556,000 barrels a day as fields matured.
The Spanish company wants to sell part of its holding in YPF “sooner rather than later,” Chief Executive Officer Antonio Brufau said on April 29. In 2008 Repsol delayed a public offering of a stake in YPF.
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