Sinopec Buys Canada’s Daylight for $2.1 Billion to Gain Shale-Gas Assets

China Petrochemical Corp., the nation’s biggest refiner, agreed to buy Daylight Energy Ltd. (DAY) for C$2.2 billion ($2.1 billion) in cash, gaining Canadian oil and shale-gas reserves in its largest acquisition this year.

The state-owned company known as Sinopec Group offered C$10.08 a share, Calgary-based Daylight said in a statement yesterday. That’s 70 percent higher than Daylight’s average price during the past 20 trading days and more than double the average 32 percent premium for comparable cash bids for North American energy explorers, data compiled by Bloomberg show.

The takeover would give the Beijing-based company access to more than 300,000 acres of land in areas rich with oil and natural gas, adding to its expansion outside Asia after falling crude prices made valuations attractive. Sinopec Group and Cnooc Ltd. (883) are among Chinese companies that have bought almost $30 billion of Canadian assets in the past five years to meet energy demand in the world’s fastest-growing major economy and gain access to drilling methods to help unlock Asian resources.

“Sinopec made a number of oil-sands acquisitions, and this is probably the most gas they’ve acquired in western Canada,” Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co., said by telephone today.

The oil and gas industry accounts for the second-biggest volume of mergers worldwide this year after telecommunications, with $127 billion in transactions, Bloomberg data show.

Daylight’s Assets

Two other energy deals were announced today. Superior Energy Services Inc. (SPN), a U.S.-based oilfield services provider, will pay $2.6 billion in cash and stock for Complete Production Services Inc. In Australia, Everyday Mining Services Ltd. said it will merge with Hughes Drilling Pty Ltd.

Daylight’s proven and probable reserves rose 46 percent to the equivalent of 174 million barrels of oil at the end of 2010, the company said March 1. Beveridge values Daylight’s reserves at $16.70 per barrel of oil equivalent, saying Sinopec Group is paying a “fair price” for those assets.

Sinopec Group will join rival China National Petroleum Corp. and Cnooc in seeking technology through partnerships as China, estimated to hold more gas trapped in shale rock than the U.S., opens new areas to exploration. The world’s biggest energy user, which currently doesn’t produce any shale gas commercially, has brought in foreign partners including Exxon Mobil Corp., Royal Dutch Shell Plc and Chevron Corp. to assess its potential.

Chinese Shale

China has an estimated 1,275 trillion cubic feet of technically recoverable shale gas, more than the estimated reserves in the United States and Canada combined, according to an April report by the U.S. Energy Information Administration.

The U.S. and Canada produced 26.2 trillion cubic feet of gas in 2009 compared with 2.9 trillion cubic feet in China, according to EIA data.

China Petroleum & Chemical Corp. (386), Sinopec Group’s Hong Kong-listed unit, fell 4.4 percent to close at HK$7.16. Daylight closed at C$4.59 on Oct. 7 in Toronto. The company’s shares have declined 56 percent this year. Canadian markets were closed today because of a national holiday.

Collaboration with overseas companies will help boost the search for shale-gas resources, and “future growth will mainly come from unconventional gas,” Chairman Fu Chengyu said Aug. 30. China Petroleum finished drilling its first shale-gas well in Hubei province July 15, Sinopec Group said July 26.

Increasing Canadian Investments

The company will increase its investments in Canada as part of its global expansion, Sinopec Group said in an e-mailed statement.

Asian buyers may spend $150 billion by 2016 to secure energy resources for their faster-growing economies, according to Sanford C. Bernstein Co. Targets may include Tullow Oil Plc, Canadian Oil Sands Ltd. and Kosmos Energy Ltd., the research firm said.

Sinopec paid $4.65 billion last year to buy a stake in Syncrude Canada Ltd., while Cnooc on July 20 announced it would spend $2.1 billion to acquire Opti Canada Inc.

PetroChina Co. walked away from a C$5.4 billion ($5.25 billion) joint operating agreement with Encana Corp. in June that would’ve given the Chinese company a 50 percent stake in about 1 trillion cubic feet of Canadian natural gas.

More foreign investment in Canada’s resources may involve some risk, such as when the Canadian government blocked BHP Billiton Ltd.’s $40 billion hostile bid for Potash Corp. of Saskatchewan Inc., Phil Flynn, vice president of research at PFGBest in Chicago, said in an e-mail today.

‘Proceed With Caution’

Canadian Prime Minister Stephen Harper said last month the nation will “proceed with caution” as it considers opening its doors to more foreign takeovers, making sure they don’t lead to a loss of head-office jobs.

Canadian regulators probably won’t have issues approving the Daylight takeover, said Robert Mark, an analyst at MacDougall, MacDougall & MacTier Inc. in Toronto.

“This stock has been in free fall for the past few weeks, so shareholders should be firmly behind this bid, which is very good value considering the company’s debt and the market uncertainty,” Mark said in an e-mail today.

More investment in Canada by international companies such as Cnooc or India’s Reliance Industries Ltd. may be imminent due to the relatively low prices of energy stocks, Michael Tims, chairman of investment bank Peters & Co. Ltd. in Calgary, said by telephone.

Daylight was advised by Canaccord Genuity Corp. and CIBC World Markets Inc. Blake, Cassels & Graydon LLP is Daylight’s legal counsel. Barclays Plc is Sinopec’s financial adviser and Vinson & Elkins LLP and Bennett Jones LLP are its legal counsel.

To contact the reporters on this story: Colin McClelland in Toronto at cmcclelland1@bloomberg.net; Bradley Olson in Houston at bradleyolson@bloomberg.net

To contact the editors responsible for this story: Amit Prakash at aprakash1@bloomberg.net; Tina Davis at tinadavis@bloomberg.net.

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