A joint venture company, which has a valuation of $1 billion, is being created to acquire the Puffin and Talbot oilfields. It will be operated by Sinopec and is expected to start business on March 31. The deal is subject to approval by AustraliaÆs Foreign Investment Review Board and other regulatory approvals in both China and Australia.
In a filing to the Australian Securities Exchange, AED said that the partners intend ôto work together in a broader association to seek other project opportunities in the regionö.
AED is the latest in a string of outward investments by Chinese natural resources companies which are seeking to secure supply for ChinaÆs growing demand.
AED was set up to develop the proven oil reserves in the Bonaparte Basin in north western Australia, the Puffin Field. In mid-2007 it also bought the Talbot Field in the Timor Sea for A$2.65 billion.
AED was forced to seek a partner as its liabilities are mounting and it is facing time over-runs in its oil fields as the Puffin oil field was unable to reach its full potential. Only the Puffin northeast field is currently producing oil while the southwest field is still being developed. The Talbot oil field is still under appraisal.
Creditors are getting nervous about the delays and AED is facing claims for overdue payments. Thus, in January, AED appointed Macquarie Bank to conduct an auction on its behalf to find potential buyers or partners. AED intends to use the money it receives to retire debt and fund the joint ventureÆs plans.
Sinopec is an oil and gas company in China. In calendar 2006 it produced 40 million tonnes of crude oil and processed approximately 146.3 million tonnes. It also distributed 112 million tonnes of refined oil products. Sinopec was advised on the deal by Citi.
Analysts were generally positive on the move for both companies. The deal is a bailout for AED stakeholders but leaves them with the opportunity to benefit from the upside in the development of the oilfields as AED continues to own a 40% stake in the JV. The structure works well for Sinopec, which acquires control over the Puffin and Talbot oilfields without having to take on AEDÆs liabilities.
AED shares were suspended from trading on the stock exchange on February 28, the day it informed the market it had received a number of proposals for its business. It closed at A$1.85 on February 27 after falling 10% during the course of the dayÆs trading. The shares will resume trading today. Sinopec lost 5.5% on the NYSE on March 7 to close at $95.59.
A large trade balance between Australia and China, geographical proximity and the fact that Australia is rich in natural resources makes the country an obvious shopping ground for Chinese companies.
In January, China embarked on its largest ever outbound acquisition when Chinalco and Alcoa jointly acquired a 12% stake in Rio Tinto for an outlay of $14 billion. Australia-based Rio Tinto is the worldÆs third-largest diversified mineral group and a leading aluminium producer and was at the time (and still is) under siege by BHP Billiton.
In February, Australian iron ore mining firm Midwest Corporation, rejected a $1.1 billion takeover bid by Chinese commodities company Sinosteel.
In the oil and gas sector specifically, few companies are shopped without being shown to Chinese buyers, say M&A bankers. Some of these bids will be successful and some will not, but they seem set to gain momentum.
¬ Haymarket Media Limited. All rights reserved.
