CNPC to Buy Stake in Eni Mozambique Assets for $4.2 Billion

China National Petroleum Corp., the country’s largest oil producer, will spend $4.2 billion for a stake in Eni SpA’s African natural-gas assets as China looks to feed energy demand while reducing its reliance on coal.

CNPC will buy a 20 percent stake in Mozambique’s Area 4 where 75 trillion cubic feet of gas, or more than Norway’s existing reserves, has been found, state-controlled CNPC said in a statement on its website yesterday.

The purchase will be the biggest deal involving an Asian company announced this year and CNPC’s largest overseas purchase ever, according to data compiled by Bloomberg. China’s oil companies have bought oil and gas fields in countries ranging from Australia to Canada to Nigeria to meet energy demand in the world’s fastest-growing major economy.

“This acquisition affirms China’s insatiable appetite for environmentally friendly natural gas projects, paving the way for more domestic natural gas pricing adjustments ahead,” said Gordon Kwan, head of energy research at Mirae Asset Securities Ltd. in Hong Kong. “Coal will slowly lose market share in China in the coming decade.”

Pollution in Beijing rose to a record on Jan. 12, sparking criticism of the government’s management of the environment.

Mozambique may have 250 trillion cubic feet of reserves, according to Empresa Nacional de Hidrocarbonetos, the country’s state-backed petroleum exploration company. ENH, Galp Energia SGPS and Korea Gas Corp. each own 10 percent of Area 4, according to the statement.

Indian Stake

Eni “should share with the government” some of the proceeds of the stake sale to CNPC, Mozambican Energy Minister Salvador Namburete told reporters in the capital, Maputo. The company expects a maximum tax charge of 10 percent, Chief Executive Officer Paolo Scaroni told reporters in London.

Mozambique’s offshore fields may hold enough gas to meet world consumption for more than two years, according to ENH. Eni and Anadarko Petroleum Corp., the two companies leading exploration in Mozambique, agreed last year to build the world’s second-largest liquefied natural-gas export plant to start sending fuel abroad in 2018.

Oil & Natural Gas Corp. and Oil India Ltd., Indian state-run energy companies, made a joint bid to buy a 20 percent stake the Rovuma-1 field, a person with direct knowledge of the matter said yesterday. The shares are being sold by Anadarko and Videocon Industries Ltd., the person said, asking not to be identified because the information isn’t public. The sellers are divesting 10 percent each in the offshore block.

Spreading Costs

Selling some of its gas discoveries allows Eni to spread the cost of developing the fields and building the LNG plant, estimated at $20 billion by Mozambique’s government, and helps cement its relationship with Asia’s largest oil and gas company. Mozambique is the biggest discovery in the history of Rome-based Eni, Italy’s largest company by market value.

“It’s a really good deal,” said Jason Kenney, an Edinburgh-based analyst at Banco Santander SA. “It’s going to de-risk the capital exposure for Eni. It’s a good price, fair price. There are significant resources.”

PetroChina Co., CNPC’s listed unit, fell 0.8 percent to HK$10.58 at 9:40 a.m. in Hong Kong. Eni rose 3.1 percent to 18.49 euros in Italy yesterday. The company raised its production growth target to more than 4 percent a year through 2016.

Eni and CNPC will also jointly study shale-gas exploration in China’s Sichuan basin, according to the statement. If the gas can be commercialized, the two companies will discuss the terms of a production-sharing contract.

Observers have become more pessimistic on China’s shale-gas prospects in the past year and LNG is seen as a more feasible solution in a country where natural gas prices are strictly controlled. China has no commercial shale production.

CNPC Hedging

The Mozambique purchase follows Australian deals struck by PetroChina in recent months. By investing in both countries, which have significant natural gas reserves, CNPC is hedging its risk, said Simon Powell, head of Asian oil and gas research at CLSA Ltd. in Hong Kong.

PetroChina last month agreed to buy a 20 percent stake in the Poseidon natural gas discovery off the northwest coast of Australia and a 29 percent interest in the Goldwyer shale project in the onshore Canning Basin from Houston-based ConocoPhillips.

PetroChina in December agreed to pay BHP Billiton Ltd. $1.63 billion for a stake in the proposed Browse liquefied natural gas venture in Western Australia.

The company plans to invest at least $60 billion this decade in global oil and natural gas assets to increase the share of overseas output to half of its total, Chairman Jiang Jiemin said in 2010.

“It was only a matter of time before the Chinese showed up to take a stake in the Mozambique LNG projects,” said CLSA’s Powell. “East Africa is well positioned to serve Asian customers.”

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