Sinopec Close to Acquiring Nigerian Oil Blocks from Total

on Nov 7, 2012

On 7 November 2012, Bloomberg reported that China Petroleum & Chemical Corp (NYSE:SNP, HKG:0386, SHA:600028), also known as Sinopec, was on the way to acquiring stakes in Nigerian onshore oil blocks from the French oil and gas producer Total SA (NYSE:TOT, LON:TTA, EPA:FP). Sinopec, whose share of overseas production is smaller than that of peers such as PetroChina (NYSE:PTR, HKG:0857, SHA:601857), is trying to reverse a decline in its oil reserves.

**Sinopec Said to Have Signed Preliminary Deal**
Bloomberg quotes two people familiar with the matter as saying that Sinopec is close to buying the stakes for about $2.4 billion (£1.5 billion), with one of the sources noting that the Chinese company has already signed a preliminary deal. The agreement, however, has not been made public.
“We like the potential upstream asset acquisition in Nigeria because it could help Sinopec replenish its dwindling oil reserves and improve the firm’s overall profit margin amid sustained high oil prices in the long term,” pointed out Gordon Kwan, head of energy research at Mirae Asset Securities Ltd (KRX:037620), as quoted by Bloomberg.

Sinopec’s crude oil reserves declined from 3.3 billion barrels in 2007 to 2.8 billion barrels at the end of 2011, sufficient for nine years of production at 2011 levels, according to data compiled by Bloomberg. The Chinese company, however, recently reported better-than-expected quarterly results, following a rise in Beijing-controlled retail fuel prices. Sinopec also reported a 27 percent increase in its overseas oil production for the first nine months of 2012, with foreign output accounting for 6.5 percent of total oil production.

**Chinese Companies Viewing African Assets**
Chinese companies have recently been looking for oil and gas assets abroad, focusing on emerging markets such as Africa, where regulations are lighter than those in Europe or North America. In Canada, for instance, state-backed foreign companies such as CNOOC Ltd (HKG:0883, NYSE:CEO), which aims to acquire the Canadian oil and gas company Nexen (TSE:NXY), are facing extensive government scrutiny.

!m[Beijing-Backed Energy Company Seeking To Reverse Oil Reserves Decline ](/uploads/story/738/thumbs/pic1_inline.png)Bloomberg reports that Sinopec has also approached the oil and gas company Maurel & Prom (EPA:MAU) about a potential acquisition. The France-based Maurel & Prom has businesses in several African countries including Gabon, Senegal, Congo and Mozambique. Sinopec’s parent, China Petrochemical, which has indicated that it aims at producing overseas 50 million metric tonnes of crude a year by 2015, acquired assets in Nigeria, Cameroon and Gabon in 2009.

**Total’s Asset Sale Programme**
Total has so far declined to comment on the potential sale of assets to Sinopec. At the end of September, however, the French energy giant introduced a $15-20 billion asset sale programme over 2012-14, aimed at “reinforcing that active portfolio management is integrated into Total’s strategy.”
As noted in the company’s quarterly results released October 31, Total has already disposed of upstream sales in the UK and Nigeria, with the total proceeds for asset sales since the beginning of 2012 reaching approximately $5 billion, including the sale of the energy group’s remaining shares of the French healthcare company Sanofi (EPA:SAN).


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