Making a move: CNOOC
CNOOC silences critics with Uganda move
China National Offshore Oil Corporation's (CNOOC) likely acquisition of Heritage Oil's Ugandan assets should silence critics concerned that the country's top offshore oil producer has been sitting on too much cash for too long, analysts claimed.
CNOOC has not gone shopping overseas since it paid $2.7 billion for a stake in French giant Total's Akpo field in 2006. A year earlier, it was bumped by a US political backlash from buying US-based oil company Unocal.
Analysts had begun to question the group's bullish production growth forecasts, pushing CNOOC to seek more outbound deals.
The Chinese group may now be about to pay up to $2.5 billion for Heritage's Ugandan assets.
"This deal makes a lot of sense in the longer term," Gordon Kwan, head of regional energy research at Mirae Asset Securities, told Reuters. "Acquisitions are the fastest way for a company to grow its production and reserves, while not every exploration effort will result in new discoveries."
"Now's the best time to come back to the market, with oil prices down 50% from an all-time high," Kwan said, noting that if CNOOC were to pay $2.5 billion for a 20% stake, it would be getting 164 million barrels at $15 per barrel.
"It's not unreasonable," he said.
The sale process for the oilfields, which executives say contain around 2 billion barrels of oil, has been a competitive process between British, Italian and Chinese players.
On Friday, Italy's Eni pulled out of a planned $1.5 billion purchase of Heritage's 50% stakes in blocks 1 and 3A in Uganda, in which London-listed Tullow Oil has preemption rights.
Tullow controls three blocks that cover the Ugandan side of Lake Albert, but the explorers lack the resources to develop the project alone.
Tullow has said it wants to sell the Heritage assets on to CNOOC. A Dow Jones report on Friday said CNOOC was preparing a statement about a $2.5 billion deal with Tullow.
Today Heritage said it will receive $1.35 billion on completion of the sale of its Ugandan assets.
"These assets are in offshore development, which clearly CNOOC has expertise in," Neil Beveridge, senior oil analyst at Sanford Bernstein, told Reuters, adding that CNOOC's ability to attract capital when needed would work in the Chinese company's favour.
"CNOOC has a very low gearing and the ability to call on lending for Chinese banks probably at attractive interest rates," Beveridge said. "This should enable CNOOC to pull off this deal without any problems."
CNOOC spokesman Jiang Yongzhi declined to comment.
China's upstream players have announced roughly $18.8 billion in outbound acquisitions this year, according to Thomson Reuters data.
Last year, CNOOC was in the running to buy Kosmos Energy's stake in the Jubilee oilfield off Ghana.
In September, CNOOC identified 23 licences in Nigeria in which it would like to buy stakes, including 16 operated by Shell, Chevron and ExxonMobil which were up for renewal.
Last week, CNOOC said it aims to produce between 275 million and 290 million barrels of oil and gas equivalent this year, up from an estimated 226 million to 228 million boe last year.