Business | Oil & Gas
China Oilfield's first acquisition attempt in Russia ends in failure
Russia has rejected a bid by China Oilfield Services to buy a unit of TNK-BP, smothering what would have been the Chinese firm's first acquisition abroad at the final hurdle and sending its shares 12 per cent lower.
- Reuters
- Published: 00:04 January 25, 2008
Hong Kong: Russia has rejected a bid by China Oilfield Services to buy a unit of TNK-BP, smothering what would have been the Chinese firm's first acquisition abroad at the final hurdle and sending its shares 12 per cent lower.
State-owned China Oilfield, the drilling and equipment arm of top Chinese offshore oil producer CNOOC Group, had agreed to buy oil services firm STU from TNK-BP for more than $10 million, making its maiden foray into the world's No. 2 oil exporting country.
Now, a company official told Reuters the Russian government had thrown out the deal - which both firms had thought would go ahead with little obstacle - without a word of explanation.
"It has been rejected by the Russian government in the final phase. They did not give us any reason," said the official, who has direct knowledge of the matter but is not cleared to speak to reporters.
Despite the failure, the company said it will keep exploring acquisitions in Russia.
"Russia is still one of our strategic markets. We will continue looking for other projects there," the official said. "But we may change our approach for future acquisitions."
Shares in China Oilfield plunged 12 per cent yesterday, lagging the benchmark Hang Seng Index's 2.3 per cent fall, as investors swallowed the surprising news.
China Oilfield now views Russia, the Middle East and the Gulf of Mexico as strategic markets it needs to explore. It already maintains a presence in Southeast Asia.
But if it eventually wins entry into Russia, it will still lag Western oilfield services giants such as Schlumberger and Halliburton, which have bought into local independents and now control about a third of the Russian service sector. Russian oil majors and independents each hold a third.
China Oilfield Chief Executive Yuan Guangyu told Reuters last August that the company was in advanced talks to buy another foreign firm, in a deal that would dwarf the STU transaction.
But the official declined to disclose any details.
"I don't think they have the scale to buy any listed company. If they do look it's probably going to be private smaller companies," the analyst said.
Politics remains an obstacle for Chinese oil acquisitions abroad, particularly in Russia, he added.
China's thirst for large foreign oil companies - and for resources to feed its booming economy - was showcased by listed CNOOC Ltd's $18.5 billion cash bid for California-based producer Unocal in 2005.
CNOOC Ltd, an affiliate of China Oilfield and a subsidiary of the CNOOC group, abandoned the offer in the face of strident political opposition.
Setback: Eexpansion plans
China Oilfield had expected the Russian deal to be finalised last April. It had already won Beijing's blessing and obtained approval from both companies.
Still, analysts said the setback would not halt China Oilfield's ambitions to expand abroad.
"I don't think it will have a huge impact on China Oilfield because anyway that is a very small investment compared with what they do," said an analyst at a major US investment bank.
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