Sinochem to invest $3.07 billion in Brazilian oil field

Sinochem Corporation on Friday agreed to buy a 40% stake in a greenfield Brazilian oil field for $3.07 billion in cash, according to a brief announcement on its website. The seller is Norwegian oil and gas producer Statoil, which will retain the remaining 60%.

The offshore oil field, named Peregrino, is located at a depth of about 100 metres, approximately 85 kilometres from Rio de Janeiro in the Campos basin and is expected to start production in early 2011. The transaction is the largest foreign acquisition by Sinochem and will transform the 100% state-owned Chinese company into a major global upstream oil and gas producer. Sinochem, which was advised by UBS, is currently the fourth largest oil company in China and the country's leading chemical producer. It is also involved in trading and manufacturing of plastics, rubbers and metallurgy products.

In the announcement, Sinochem president Han Gensheng said the company was "delighted" to be buying a significant interest in an asset of such high quality. "We are also pleased to have a partner with such depth of experience and quality of reputation as Statoil. We look forward to working closely with Statoil in the development and operations of this substantial field and to building a long-term partnership...with them," he added.

In a separate announcement Statoil said that both companies see many opportunities for value creation through increased recovery and exploration for additional resources in the decades to come. They have also agreed to sign a memorandum of understanding to jointly investigate further opportunities in Brazil and elsewhere.

The Peregrino transaction is subject to government approvals in both Brazil and China.

Statoil, which is listed in Oslo and New York, is the world's largest offshore oil and gas operator in waters deeper than 100 metres and the third largest net seller of crude oil. The Peregrino field was included into its project portfolio when it merged with the oil and gas division of fellow Norwegian firm Norsk Hydro in October 2007. Norsk Hydro bought a 50% stake in the Peregrino field in 2005 when it was an undeveloped discovery and Statoil bought the remaining 50% in 2008 from US oil and gas explorer Anadarko Petroleum Corp.

Peregrino is the Norwegian company's largest offshore project outside the Norwegian Continental Shelf, and according to a Bloomberg news report, Statoil had said last year it was considering cutting its stake in the field to reduce risk and raise funds to develop other projects

Neither company commented on the price of Sinochem's 40% acquisition, although Statoil's CEO Helge Lund indicated that it got a good price for giving up just a minority stake.

"The transaction confirms the high quality of the Peregrino asset, reflecting Statoil's value added through the field development," he said, adding, "The transaction demonstrates Statoil's ability to leverage its industrial competence developed at the Norwegian Continental Shelf, and realise value for our shareholders. The divestment is a natural step in our continuous effort to optimise our portfolio."

Lund also stressed that Brazil, where it holds another eight exploration licences, will continue to form a key part of Statoil's international strategy.

For Sinochem's part, the acquisition is yet another example of how Chinese firms are scanning the globe for resources to feed the country's rapidly growing economy. According to media reports last month, Hong Kong-listed Cnooc, which is China's largest offshore energy explorer, also bid for the Peregrino stake, and offered to pay up to $3 billion.

And while this isn't a controlling stake, Peregrino is a large field and Sinochem should be able to realise a significant amount of oil from it. According to a source familiar with the transaction, the Brazilian project will have an estimated near-term production of 100,000 barrels per day when it starts operations early next year and has estimated discovered oil resources of more than 3.5 billion barrels. The first phase of the development is already in place and includes two drilling- and wellhead platforms and a ship-shaped floating production, storage and offload unit (FPSO).

According to the Statoil release, Sinochem made its first overseas oil and gas investments in 2003 and since then has successfully completed approximately $1.8 billion of overseas acquisitions in the energy sector, focusing primarily on Latin America, Africa and the Middle East.

Statoil's share price finished 0.7% higher at NKr127.30 on the Oslo exchange following the announcement on Friday, after falling as much as 3.5% intraday.