China National Overseas Oil Corporation (CNOOC) announced its largest overseas acquisition yesterday (January 9) after agreeing to purchase a 45% stake in Nigerian Oil Mining License (OML) 130 for $2.23 billion.
Under the terms of the all cash deal, CNOOC has acquired rights (via its Hong Kong listed subsidiary CNOOC Ltd) to exploit oil reserves, which could amount to the equivalent of 1.1 billion barrels of oil in oil-and-gas rich Nigeria. It will also invest a further $2.25 billion in capex through to 2009.
The price paid is the equivalent of $4.6 per barrel of oil, although the final price will depend on how difficult the oil is to extract and on how much there actually is. This price is significantly lower than the $7.3 level paid by CNPC to acquire PetroKazakhstan last summer.
The most important single field under the remit of the license is the Akpo field discovered global oil major Total, which comprises the equivalent of 600 million barrels in reserves.
The field will come on-stream in 2008 and reach maximum output 'shortly after' according to a statement put out by the company yesterday. CNOOC's latest piece of M&A was advised by Goldman Sachs and is just one-eighth the size of its failed $18 billion cash bid for US oil and gas provider UNOCAL last year.
The Nigerian assets only incorporate a small natural gas component. This had been the distinguishing characteristic of the assets CNOOC had wanted to acquire from UNOCAL.
Oil from the Nigerian oil fields will not be shipped back to China because the transportation problems would have been too daunting, but to Europe and the US. Specialists say the grade of the oil is hard to assess, but it is reportedly suitable to be processed into petrochemicals, which requires 'fairly high' level of purity. The higher the grade of the oil, the cheaper it is to extract.
CNOOC has little deep water oil production experience. All the oil extraction operations in the fields will be conducted by Total, which will be paid a fee to do so.
Total is also an investor in its own right via a PSA (production sharing agreement). The fields are being exploited via two types of contracts, both of which confer rights to an oil mining license (OML) in this case OML 30.
The first type, known as a PSA (Production Sharing Agreement), gives foreign investors the right to buy a stake directly in the oil mining license. A PSC (Production Sharing Contract) refers to a structure whereby a company sub-contracts or licenses a foreign or domestic company to exploit the oil in return for a share of the revenue.
The PSA and PSC are currently split 50-50. CNOOC is acquiring a 90% stake in the PSC, which will give it rights to 45% of the total deposits. The PSC was previously 100% held by privately-held South Atlantic Petroleum Ltd (Sapetro), which had been passed on the rights to the oil by state-owned Nigeria National Petroleum Corp.
The PSA comprises three investors, namely Sapetro, Total and Brazil's Petroleo Brasileiro SA, with stakes of 60%, 24% and 16% respectively.
