The Chinese are coming
CHINA'S Sinopec has won the tender for Udmurtneft, TNK-BP's oil producer. The acquisition marks a breakthrough for China, which has been hunting unsuccessfully for upstream assets in Russia for several years.
But the Chinese advance is taking place strictly under Russian control. Sinopec will pay TNK-BP the full purchase price – estimated to be in the $2.7bn-4.8bn range – for Udmurtneft, but will allow Rosneft to exercise an earlier agreed option to acquire 51% of the producer. The Russian state-owned oil company will pay for its majority interest later with future cash flows from Udmurtneft.
In a statement Rosneft said: "Rosneft and Sinopec are convinced that the agreement is an important step on the path towards both deepening co-operation between the two companies and the development of a strategic relationship with the leading industrial corporations" of China.
TNK-BP decided to cast off 115,000 barrels a day (b/d) Udmurtneft early this year as part of a strategy to divest its smaller, less-profitable enterprises. Udmurtneft's 0.55bn barrels of reserves lie in the mature Volga/Urals oil province. However, competition for the producer was intense. Hungary's Mol, a consortium of independent gas producer Itera and India's ONGC, and Gazpromneft, the new oil division of Gazprom, all wanted Udmurtneft.
China has been chasing Russian oil assets for five years. Plans to bid at the privatisation auction of Slavneft in 2002 were frustrated after parliament voted to exclude foreign companies. Bureaucrats blocked a later attempt by Beijing to acquire a producer in the Orenburg region and then advised China National Petroleum Corporation (CNPC) to stay away from the auction of Yuganskneftegaz, the 1m b/d producer confiscated from Yukos.
Rosneft placed an unchallenged $9.4bn bid for Yuganskneftegaz and then turned to China for help with financing its purchase. China's $6bn loan to Rosneft was a betrayal for Yukos, which had forged closer ties with Chinese companies than any other Russian firm. Rosneft is now supplying oil to China, earlier promised by Yukos, as part of a plan to build a privately owned pipeline from Siberia to Daqing province.
Russian/Chinese oil relations are now firmly in state hands. Rosneft has signed preliminary agreements with Sinopec calling for joint exploration in the Russian far east. The Russian oil company has opened an office in Beijing and plans to establish a products-marketing network in China. There is speculation that Chinese oil companies will participate in Rosneft's initial public offering, which is expected to take place this month.