Petronas buys stake in Azerbaijan oil field

Malaysia's Petronas buys Statoil's 15.5% interest in an oil field in Azerbaijan for $2.2b, its third largest acquisition.

Malaysia state-owned oil and gas giant Petronas has bought Norway-based Statoil's 15.5% interest in the Shah Deniz oil field in Azerbaijan for $2.25 billion, making it the latest Asian national oil company to strike a deal as international energy giants pare assets.

As part of the deal, Petronas is acquiring a 15.5% interest in the Shah Deniz production sharing agreement and a 15.5% share in the South Caucasus Pipeline Company and its holding company, along with a 12.4% share in the Azerbaijan Gas Supply Company.

The Shah Deniz field was discovered in 1999 and is located on the deep water shelf of the Caspian Sea, 70 kilometres south-east of Baku, the capital of Azerbaijan, in water depths ranging from 50 to 500 metres. 

The acquisition will give Petronas a presence in a producing field in oil-rich Azerbaijan. Statoil’s 2014 second quarter production from the Shah Deniz field was 38,000 barrels of oil equivalent per day.

According to data provider Dealogic, it is the Petronas' third largest acquisition, after its $5.7 billion acquisition of Canada's Progress Energy Resources in 2012 and its $2.5 billion acquisition of Gladstone's LNG project in Australia in 2008.

The sale enables Statoil to reallocate its resources towards other areas. "The divestment optimises our portfolio and strengthens our financial flexibility to prioritise industrial development and high-value growth,” said Lars Christian Bacher, executive vice president for Development and Production International in Statoil in a release.

The Shah Deniz field is operated by British giant BP (28.8%) and the other partners are Turkish national oil and gas company TPAO (19%), State Oil Company of Azerbaijan Republic (16.7%), Russia's second largest oil company Lukoil (10%) and Nico (10%).

US oil and gas companies have been under pressure from shareholders to cut capital expenditure and improve returns and focus on operations closer to home, which has resulted in opportunities for Asian oil and gas companies to scoop up assets in the region. 

In late September, Indonesia's state-owned giant Pertamina bought a 30% stake in Arkansas-based Murphy Oil's oil and gas assets in Malaysia for $2 billion in cash.

Meanwhile, in April, Thai state-owned oil and gas company bought US oil and gas company Hess’ Thai assets, including natural gas fields in the gulf of Thailand and in the Udon Thani and Khon Kaen provinces in northeast Thailand for $1 billion.

However, Asian oil giants have also become more circumspect about acquisitions, with many focusing more on acquiring assets that are already producing oil and closer to home.

They are also seeking partners for large-scale projects to spread out the risk. In an interview with FinanceAsia earlier this year, Petronas group CFO George Ratilal said Petronas could trim its stake in its Canadian Pacific Northwest liquefied natural gas project to 50%. In April, Petronas sold a 15% stake in the project to Chinese oil giant Sinopec.

Petronas is present in more than 65 countries.The effective date of the transaction is January 1 2014 and the transaction is expected to be closed early 2015, subject to approval from the relevant authorities, Statoil said in the release.

Bank of America Merrill Lynch advised Petronas.

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