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Eric Ng

Outbound acquisitions by the mainland's state-owned oil and gas majors have fallen after a buying spree over the past few years, and officials are cautious on doing deals amid a protracted anti-corruption campaign by the central authorities in Beijing.
But asset purchases by smaller state-owned firms and private companies have increased as they seek to diversify into the sector that still provides good cash-flows despite profits being slashed by lower oil prices and rising expenses from exploration and operating costs.
Smaller operators are seen by some as potential beneficiaries of measures announced by Beijing last month to smooth procedures for overseas investments.
The measures, which came into effect last week, allow domestic firms to invest overseas without prior approval, although they must first register their investment with the authorities. A potential snag for energy companies is that investments in industries or countries deemed sensitive will still require approval.
Herbert Smith Freehills partner, Hilary Lau, said the new rules would facilitate deal flows, especially for small and medium-sized enterprises, but judgment on the sensitivity of an energy-sector deal would likely be decided on a case by case basis.
"Generally, the initiative to stimulate deals and speed up the approval process is definitely a positive one and is in line with China's efforts to encourage deal flows over the past year," Lau said.
Total outbound deals by China National Petroleum Corp (CNPC), China Petrochemical Corp and China National Offshore Oil Corp (CNOOC) fell 31.5 per cent to US$11 billion from US$16.1 billion in the 12 months to August 31 from the year-earlier period, according to Dealogic.
The figure is just one third of the US$33.5 billion in outbound investment in the 12 months to August 31, 2012, when the deal volume was boosted by CNOOC's US$18.2 billion acquisition of Canada's Nexen.
A partner at an American law firm who advised the mainland oil giants said some officials he dealt with who are responsible for executing acquisitions have been sitting on their hands after being questioned on previous deals in the middle of President Xi Jinping's anti-graft campaign.
"Some of them have been asked to justify that they have not overpaid in deals done many years ago," he said. "They are very nervous about doing deals now."
After a US$104 billion buying spree in the past six years, the mainland majors are also taking a pause to re-examine and rationalise their portfolios.
"PetroChina's purchase of a 40 per cent stake in the Dover oil sands project in Canada - a deal struck last April and completed in August - will probably be the last major acquisition deal by the large state-backed oil firms for a while," said BNP Paribas head of Asia energy research Por Yong-liang.
Earlier this year, CNOOC had reportedly been looking to sell its South American assets, which posted losses last year, while China Petrochemical - the most aggressive among the trio in overseas purchases in recent years - was seeking a buyer for some of its shale gas projects in Canada to spread its risks around. The firms would not comment on the reports.
Por said big assets available for sale tend to be oil sands projects and those with undeveloped resources that are risky and costly to develop. Or, they tend to be mature and declining fields, which would make the state giants think carefully before acquiring, especially at a time when they are instilling more capital discipline in their operations, he added.
Lau, who advised the mainland giants on outbound acquisitions, said they are focusing more on developing projects they have bought. Once they enter production and generate cash flows, he believes the firms will be more active in buying assets.
"Some companies have simply scaled back on their acquisitions because their funds are to be pumped into developing their existing and newly bought projects," he said. "A large part of the cost for upstream oil and gas projects is incurred during the development phase."
Lau noted an increase in acquisitions by mainland private firms of assets in the mainland and overseas. Some are downstream energy distributors seeking to expand upstream into exploration and production.
He cited the US$1.05 billion acquisition this year by Shenzhen-based Hong Kong-listed fuel trading and logistics firm Brightoil Petroleum (Holdings) of minority stakes in two mature offshore oilfields about 100km southeast of Tianjin from United States oil firm Anadarko Petroleum. State-backed CNOOC has majority control.
Hong Kong-listed China Oil & Gas Group, a natural gas distributor, has also struck a deal in June to buy Canada's privately owned unconventional oil and gas producer Baccalieu Energy for US$217 million. Some of those buying are not in the oil and gas business but saw good potential in mid- to long-term returns in the business.
Shanghai-based conglomerate Fosun International August agreed to fully acquire Roc Oil, an Australian-listed oil and gas firm, for A$474 million, trumping the offer terms of a proposed merger between Roc and another Australian firm Horizon Oil.
According to Dealogic, outbound acquisitions by mainland firms other than the big three state giants totalled US$2.1 billion in the 12 months to August 31, up from US$1.87 billion in the year-earlier period and US$754 million in the 12 months to August 31, 2012.
Lau advised non-energy firms to be thorough on due diligence on the target assets' viability and valuation, background of the project operators and joint venture partners, as well as environmental liabilities and future capital expenditure required for the projects to enter production.


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Big oil companies are wary amid a campaign against corruptional though smaller firms are more active in buying foreign assets


Outbound acquisitions by the mainland's state-owned oil and gas majors have fallen after a buying spree over the past few years, and officials are cautious on doing deals amid a protracted anti-corruption campaign by the central authorities in Beijing.


China oil giants' overseas buying spree loses steam

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Big oil companies are wary amid a campaign against corruptional though smaller firms are more active in buying foreign assets

Big oil companies are wary amid a campaign against corruptional though smaller firms are more active in buying foreign assets