Sinopec Agrees to Acquire Occidental's Argentina Unit for $2.45 Billion

China Petrochemical Corp., Asia’s biggest refiner, agreed to buy Occidental Petroleum Corp.’s Argentine oil and gas unit for $2.45 billion, signaling the country’s appetite for energy assets shows no sign of easing.

The purchase marks the Beijing-based company’s first investment in Argentina’s oil and gas industry, the Chinese refiner known as Sinopec Group said in an e-mailed statement. The deal is subject to government approvals.

The acquisition takes Chinese bids for overseas energy assets to a record $38.8 billion this year, according to data compiled by Bloomberg. Prior to today’s deal, companies including Sinopec Group and Cnooc Ltd. had invested more than $13 billion in the South American oil industry in 2010 to meet demand in the world’s fastest-growing major economy.

“Chinese companies are interested in acquiring energy assets that China needs in developing countries like Argentina because they are seen as having less competition from the big established oil majors,” said Shi Yan, an analyst at UOB-Kay Hian Ltd. in Shanghai. “We’ve seen a lot of interest in Latin America from Chinese companies recently.”

A venture half owned by Beijing-based Cnooc bought a stake in Argentina’s Pan American Energy LLC last month for $7.06 billion. In October, Sinopec Group agreed to pay $7.1 billion for a 40 percent stake of Repsol YPF SA’s Brazilian unit. That was China’s largest overseas oil deal since Sinopec Group bought Addax Petroleum Corp. for C$8.3 billion ($8.2 billion) last year to gain reserves in Iraq’s Kurdistan and West Africa.

Source: Occidental Petroleum Corp. via Bloomberg

Chief Executive Ray Irani, seen here in a 2006 company photograph, has sold assets in Pakistan and Russia to focus on prospects in the U.S. including Texas and the Middle East. Close

Chief Executive Ray Irani, seen here in a 2006 company photograph, has sold assets in... Read More

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Source: Occidental Petroleum Corp. via Bloomberg

Chief Executive Ray Irani, seen here in a 2006 company photograph, has sold assets in Pakistan and Russia to focus on prospects in the U.S. including Texas and the Middle East.

Expanding Reserves

“This deal seems a little bit expensive,” Shi said. “They are paying about $6.20 a barrel, but it seems to be partly for probable reserves not proven reserves. Cnooc recently paid about $9.10 per barrel for assets in Argentina, but that was for proven reserves.”

Sinopec Group may have paid about $6.90 a barrel for the reserves, said Neil Beveridge, an analyst at Sanford C. Bernstein & Co. in Hong Kong.

The Occidental unit, Occidental Argentina Exploration & Production Inc., holds an interest in 23 production and exploration concessions in Santa Cruz, Mendoza and Chubut provinces, of which 19 are operating. As of the end of 2009, the concessions held proven plus probable reserves of 393 million barrels of oil equivalent, according to Sinopec Group.

The Chinese company would gain access to fields that produced more than 51,000 barrels of oil equivalent a day last year, or about 1 percent of China’s daily crude imports.

Argentina’s proven oil reserves were 2.5 billion barrels as of the end of last year, while China had 14.8 billion barrels, according to BP’s Statistical Review of World Energy.

Energy Demand

China’s oil demand may rise to 11.63 million barrels a day by 2015 from 9.16 million barrels a day this year, according to the International Energy Agency. Crude imports reached 4.1 million barrels a day in 2009.

“The attraction is that Argentina is open to doing business with China, we saw that with the recent Cnooc deal,” Beveridge of Sanford C. Bernstein said. Sinopec Group is acquiring “mature, onshore oil and gas assets, which is Sinopec’s area of expertise in that it has similar assets in China,” he said.

Sinopec Group’s listed unit China Petroleum & Chemical Corp. has climbed 3 percent in Hong Kong trading this year, compared with the 5.4 percent gain in the benchmark Hang Seng Index. The stock fell 0.4 percent to HK$7.11 at 3:15 p.m. local time.

Occidental Petroleum

Occidental has advanced 12 percent in New York, compared with the 9 percent increase in the Dow Jones Industrial Average. The stock gained 0.2 percent to close at $91.07 yesterday.

Occidental Chief Executive Ray Irani has sold assets in Pakistan and Russia to focus on prospects in the U.S. including Texas and the Middle East. According to the company’s 2009 annual report, 13 percent of Occidental’s oil and gas output comes from Latin America and 58 percent from the U.S.

The company plans to add 380,000 acres in California and an interest in 100,000 acres in other producing areas, President Stephen I. Chazen said in October.

Calls made to Occidental’s offices in Los Angeles out of office hours were unanswered.

--John Duce in Hong Kong and Wang Ying in Beijing. With assistance from Chua Baizhen in Beijing. Editors: Ryan Woo, Amit Prakash.

To contact the reporters on this story: John Duce in Hong Kong at Jduce1@bloomberg.net; Ying Wang in Beijing at ywang30@bloomberg.net

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net.

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