Asian Giants on the Prowl for Upstream Assets

by Chee Yew Cheang, APAC Editor

Deep pockets matter in any acquisition, more so when it comes to multimillion dollar upstream petroleum assets. In Asia, we need to look no further than the region’s two largest economies – China and Japan – where energy firms are on the prowl for oil and gas fields to shore up their petroleum resources.

This is quite understandable given the huge appetite for hydrocarbons in China and Japan – where 2014 consumption stood at around 10.7 million barrels of oil per day (MMbopd) and 4.3 MMbopd, respectively. According to the U.S. Energy Information Administration, China and Japan were ranked the world’s second and third largest oil consumer, respectively after the United States.

Backed by strong government financial support, oil and gas firms in the two Asian economic powerhouses have been on the lookout for upstream assets, which are now cheaper compared to a year ago following a 50 percent decline in global crude oil prices that reached a six-and-a-half year low in August.

As a net oil importer, China’s interest in buying upstream hydrocarbon assets has been a recurrent theme. But the pace of making such acquisitions slowed this year due to changes in the top management of China’s three major energy companies – China National Petroleum Corp. (the parent firm of PetroChina Co.), China National Petroleum Corp. (Sinopec) and China National Offshore Corp. (CNOOC) – arising partly from Chinese President Xi Jinping’s anti-corruption drive.

“China’s graft probes have spooked the state-owned giants, inadvertently discouraging them from conducting overseas acquisitions,” Gordon Kwan, a Hong Kong-based analyst at Nomura Holdings Inc. told Bloomberg News Aug. 28.

China’s interests in foreign asset acquisitions appeared to be rekindled recently, underpinned by decades of rising demand and limited domestic oil and gas resources.

“There’s the international race to pick up cheap assets, so the Chinese don’t want to be left out … [Chinese energy firms] have a reasonably strong bunch despite the oil price collapse, as well as cheap access to government loans. They are certainly going to take advantage to buy more strategic oil assets, as well as whole companies,” Kwan added.

PetroChina Co. is eyeing some acquisition targets and has commenced discussions about asset swaps in North America.

“Low crude prices are a good opportunity for acquisitions … Timing is really important now. We have been tracking some assets for a while and are waiting for the time to come,” Wang Dongjin, PetroChina’s president, said Aug. 27, as quoted in the Bloomberg News report.

Meanwhile, Sinopec’s Chairman Wang Yupu said that his company is also seeking “high-quality” assets overseas.

Over in Japan, the Ministry of Economy, Trade and Industry (METI) tabled a proposal to the Ministry of Finance asking for a record budget for fiscal year (FY) 2016-2017 to ensure that the country had sufficient funds to purchase overseas oil and gas assets, Nikkei Asian Weekly reported Sept. 1. METI is seeking around $620.84 million (JPY 74.8 billion), 54 percent more than the prior year’s draft budget, to meet its upstream oil and gas exploration and development goals.

If approved, this will be the biggest annual exploration and production budget since state-owned Japan Oil, Gas and Metals National Corp. (JOGMEC) began offering financial support for Japanese firms to acquire foreign upstream assets in FY 2005-2006.

“We are targeting … petroleum concessions because producing countries and state-run oil companies may open oil blocks, following drops in oil prices,” a senior METI official told Platts Aug. 31, adding that “we intend to support Japanese companies if they have the will … we are assuming (possible deals) in the Middle East, Russia, Africa or North America.”

Compared to their cash-rich counterparts in China and Japan, Thailand’s PTT Exploration and Production PCL (PTTEP) has smaller funds available for such acquisitions after trimming its 2015 capital expenditure (CAPEX) by 14 percent to $4.2 billion in response to lower oil prices, Reuters said in an Aug. 13 report.

Still, the cutback in CAPEX by the Thai upstream firm will not stop it from pursuing its interest to purchase foreign, and local, oil and gas assets.

“PTTEP has plans to … actively seek out opportunities to acquire additional projects, with a particular focus on projects in the producing phase or those which are in the final stages of development and almost ready to produce,” the Thai company disclosed Aug. 4 in its Management’s Discussion and Analysis on Operating Results for the Second Quarter of 2015.


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