Friday, July 19, 2002 11:55:07 PM

CNOOC seen planning US$300-500 mln gasfield buy

By Charlie Zhu 

HONG KONG, July 17 (Reuters) - China's largest offshore oil producer, CNOOC Ltd , is expected to announce an agreement soon to buy into an overseas gas field, a source said, in a deal expected to be worth US$300-500 million. 

CNOOC will unveil the plan immediately after Beijing selects a supplier for the country's first liquefied natural gas terminal, the source, who is close to the deal, told Reuters. The winner of the long term supply contract, estimated to be valued at US$13-15 billion, could be announced as early as this month. 

The source did not identify CNOOC's acquisition target, but analysts say it is certain to buy into a field which will be operated by China's LNG supplier. 

The acquisition would be CNOOC's second overseas foray since it bought the Indonesian assets of Spanish oil major Repsol-YPF earlier this year for US$585 million. 

"It will be made public immediately following announcement of the bidding result," the source told Reuters. 

Three foreign firms or groups are in the running for the LNG supply contract -- BP , Australia LNG Pty Ltd and Qatar's Ras Laffan Co. The deal will cover a span of 20-25 years. 

CNOOC has already signed preliminary agreements with all three bidders on potential acquisition terms, paving the way for a quick announcement once the LNG deal is clinched, the source said. 

BP FAVOURED? 

Analysts said BP was the odds-on favourite to win the supply deal as it has a 30 percent stake in the US$616 million first phase of China's LNG terminal. The terminal in the southern boomtown of Shenzhen is expected to be completed in 2006 with an annual capacity of 300 million tonnes. 

Most of the gas will be sold to power plants in the southern province of Guangdong. That would help reduce reliance on heavily polluting coal that has caused clouds of choking smog over the country's cities. 

If selected for the LNG deal, BP is expected to sell roughly half of its 50 percent stake in the Tangguh field in Indonesia to CNOOC, analysts said. The other 50 percent is held by Indonesian state oil firm Pertamina. 

Based on Tangguh's proven reserves of 14 trillion cubic feet, a 25 percent stake could cost CNOOC US$300-500 million, said an energy analyst with a large western investment bank. 

HSBC energy analyst Gordon Kwan said such a move would boost CNOOC's proven reserves by over 25 percent, helping its plan to expand output by 15 percent annually over the next several years. 

"The beauty of Tangguh is that it is a non-developed field," the first analyst said. "Tangguh is a very large resource and capable of not only feeding the first LNG project but feeding numerous other planned projects on China's east coast." 

China is aiming to build its second LNG terminal, in the southeastern province of Fujian, within five years as part of its efforts to boost natural gas consumption from 2.5 percent of its energy mix to around six percent by 2005. 

Earlier this month, China signed a deal with Dutch/Shell, ExxonMobil Corp and Russia's Gazprom to build a US$20 billion cross-country gas pipeline project. 

Shell was also taking a stake in another gas project in eastern China. BP is not involved in those projects. 

"PLEASE EVERYBODY" 

However, analysts said the possibility of Australia LNG winning the supply contract could not be ruled out. 

Major shareholders in the firm include BP with a 16.6 percent stake, Shell, Chevron/Texaco , Woodside and BHP Billiton . 

"They could please everybody by selecting Northwest Shelf," HSBC's Kwan told Reuters. 

But, because both Shell and ExxonMobil had won gas production sharing contracts in western China, "we believe Beijing will ultimately select BP...to diversify the risks among the super oil majors", Kwan said in a research note. 

Kwan said Qatar's Ras Laffan was the least likely winner because "LNG from the Middle East offers no price advantage or supply experience". 

But he noted the region accounted for 56 percent of China's 2001 crude oil imports, "which may give them some bargaining power". ExxonMobil has a stake in Ras Laffan.