Beijing has been encouraging Chinese companies to secure more oil resources abroad in an attempt to meet the growing demand for energy at home.
Zhang Jijing, director of CITIC, says the acquisition will "provide CITIC with a proven base for its overseas energy business expansion strategy in one of Central Asia's most dynamic and successful oil producing countriesö.
The assets comprise the mineral rights, until 2020, to develop the Karazhanbas Oil and Gas Field in Mangistau Oblast which has proven reserves in excess of 340 million barrels of oil and a current production of over 50,000 bbl of oil per day. Nations EnergyÆs Kazakhstan oil assets also include a 100% interest in two other Kazakhstan entities: Argymak Trans Service , which provides transportation services; and Tulpar Munai Services which provides well drilling, workover and training services.
The transaction has been brewing for a few months and at various points in time there has been speculation that CITIC would team up with Indian oil major, Oil and Natural Gas (ONGC), for a joint bid. In the last 12 months, both China National Petroleum and Sinopec have on two separate occasions joined hands with ONGC to submit joint bids for oil assets. Chinese and Indian oil companies have adopted a "collaborate rather than compete" model to ensure they do not jack up prices whilst bidding against each other. CITIC will be going it alone for this acquisition.
Analysts compare the deal to other transactions which have been seen in Kazakhstan and say the valuation broadly fits within the range, on a per barrel basis of proven reserves.
The first Kazakh oil and gas company to be quoted abroad, Kamunaigaz Exploration and Production (KMG), was floated in an IPO earlier this year at a discount to the valuation at which Nations Energy's assets are now being sold.
However, Nations Energy has been valued at less than the two strategic sales in the country - China National Petroleum Corporation's (CNPC) acquisition of PetroKazakhstan in August last year and Lukoil's acquisition of Nelson Resources. Analysts say the premium reflects the higher number of oil fields and larger exploration potential in the cases of PetroKazakhstan and Nelson Resources.
CITIC will buy shares in Nations Energy, pursuant to a Canadian court approved arrangement. As part of the deal, Nations Energy will transfer its non-Kazakhstan assets, namely operations in Azerbaijan, Indonesia and California, to a new company. Ecolo Investments which owns 76% of Nations Energy, has agreed to support the CITIC takeover, unless a competing bid comes in.
Nations Energy director, David Wilson, when recommending the transaction comments: "We believe this is a fair price for Nations Energy shareholders and option holders.ö
CITIC is a Beijing headquartered investment group with operations across the globe. It already has a presence in Central Asia through construction of a soda ash project in Uzbekistan and supplying railway coaches in Turkmenistan.
Nations Energy was set up in 1996 and acquired the Kazakhstan oil field in 1997. Since then, it has grown production at the oil field from 4,900 bbl/day to an average 41,000 bbl/day in 2005.
A spate of oil asset sales in Kazakhstan has made many owners start thinking about cashing out and in this particular instance, sources say, significant time and investment would have been required to take Nations Energy to the next level.
The chairman and president of Nations Energy, Hashim Djojohadikusumo, is the son of an erstwhile Indonesian finance minister, Sumitro Djojohadikusumo and according to the company's website, its ônewest venture is expanding its operations into Indonesiaö. Media has speculated that post the sale of Nations Energy, Hashim Djojohadikusumo could contemplate a larger presence in the Indonesian business arena.
CITIC is advised by ANZ Investment Bank and Nations Energy by Credit Suisse.
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