Chinese Oil Firms Bid $17 Billion to Expand

CNPC, Cnooc Offer $17 Billion for Repsol's Argentine Unit in Quest for Supply By ARIES POON HONG KONG -- China National Petroleum Corp. and Cnooc Ltd. have proposed paying at least $17 billion for all of Repsol YPF SA's stake in YPF, its Argentine unit, two people close to the talks said. The potential deal, which could be the biggest overseas investment by China, highlights the country's growing thirst for energy resources globally and its willingness to offer big money for access. It also underlines the ambition of CNPC to build its presence in South America and elsewhere. A deal would be another example of how Chinese companies are now working together to buy foreign energy assets after years of working alone. But the potential acquisition faces significant hurdles. A deal could be politically sensitive in Argentina, where YPF is the country's leader in both upstream operations -- the exploration for and production of oil -- and downstream operations involving oil refining and marketing. Bloomberg News Oil tanks sit at the Repsol YPF oil refinery Lujan de Cuyo at the foot of the Andes mountain range in the province of Mendoza, Argentina. The refinery is one of the three that Spain's company Repsol has in Argentina. Objections could be raised if it's believed that CNPC, China's biggest state-owned oil firm, and Cnooc, China's biggest offshore oil and gas producer, would have significant influence over Argentina's supply and pricing of strategic natural resources. The Argentine government holds no financial stake in YPF, but has the right to veto important decisions such as a transfer of ownership. The Argentine Planning Ministry, which oversees energy, didn't immediately respond to requests for comment. One of the people close to the discussions said CNPC believed it would be able to resolve any political or consumer objections to a potential deal. Spain, meanwhile, could object to seeing some key assets of Repsol, the country's largest oil company, purchased by China. Spain's industry ministry couldn't immediately be reached for comment. The Chinese side discussed their offer with Repsol executives in a two-and-a-half-hour evening meeting on July 30 in Europe, according to a document seen by Dow Jones Newswires. A Repsol press official on Monday denied the company had met on July 30 with CNPC and Cnooc, and said the company had no further comment. Earlier Monday, another Repsol press official said the company "has received expressions of interest on YPF, but no firm bid." He didn't specify who had expressed interest. Progress on clinching a deal between the Chinese companies and Repsol has been slow, and a formal offer hasn't yet been made, the people close to the talks said. China's resource majors have snapped up foreign oil and other assets recently, as the country seeks to lock in energy supplies. China Petrochemical Corp., the Chinese state-owned oil company known as Sinopec, in June acquired Switzerland-based oil explorer Addax Petroleum Corp. for $7.2 billion. In April, CNPC purchased Kazakh oil producer MangistauMunaiGas jointly with Kazakhstan's state-owned KazMunaiGas for $3.3 billion. China's state energy companies are also showing more teamwork in chasing foreign deals than previously. This year Sinopec and Cnooc have together struck deals for oil and natural-gas assets in Angola and the Caribbean. In July they agreed to buy jointly a 20% stake held by U.S. oil producer Marathon Oil Corp. in an oil block off Angola for $1.3 billion. Chinese oil companies have also signed oil-for-loans agreements with Russia and Brazil. But not all of China's efforts have been successful. In June, a $19.5 billion bid by Aluminum Corp. of China, or Chinalco, to raise its stake in Anglo-Australian mining-giant Rio Tinto collapsed amid shareholder and political concerns. An earlier, successful deal by Chinalco, in which it paid $14 billion for an initial 9% stake in Rio in February 2008, is China's largest foreign investment in the resources sector. Repsol has been looking to sell its 84% stake in YPF in order to earn more cash to pay off debt. On July 30, Repsol said its second-quarter adjusted profit plunged 62% to €265 million ($375.5 million) from a year earlier, citing dramatically lower refining margins and oil prices. It said its net debt was €10.41 billion. In 2007, Repsol sold a 14.9% stake in YPF to Argentina's Grupo Petersen for $2.24 billion. The remainder is held by minority shareholders. The Chinese side, with CNPC taking a leading role, first put forward the offer in late June, one of the people familiar with the discussions said. On July 21, Repsol responded to CNPC and agreed to continue the negotiations, the person said. Light, sweet crude oil started 2009 at near $58 a barrel and has since risen to more than $70 a barrel, which could be an important factor in the negotiations. A CNPC spokesman said he had no information on the issue. YPF declined to comment on a potential deal. Grupo Petersen referred requests for comment to YPF. CNPC is aiming to take a majority stake in YPF, while Cnooc would likely to have a smaller share, the people said. —Nisha Gopalan, Amy Or, Bernd Radowitz and Taos Turner contributed to this article. Write to Aries Poon at aries.poon@dowjones.com