Sinopec steps into overseas upstream segment

SINOPEC HAS INKED a deal to acquire a stake in Block 18, in Angola, from its parachute company, China Petrochemical Corporation.

Sinopec has purchased its first ever stake in an overseas oilfield. And by doing so, the firm will help to hedge against volatility in crude oil prices that have damaged its domestic refining margins of late. Until this time, Sinopec's international portfolio was focused solely on the downstream sector.
Under the terms of the agreement, Sinopec is to take a 55 per cent controlling stake in Sonangol Sinopec International (SSI) from Sinopec Group subsidiary Sinopec Overseas Oil & Gas (SOOG). The firm is set to pay US$1.68bn and take on US$0.78bn of debt and interest payments owed by SSI to SOOG. This brings the sum total paid for SSI to US$2.46bn. As a result, Sinopec's oil reserves will have grown by 102mn barrels overnight. Furthermore its production levels will have moved north by 72,520 bpd.
SSI controls a 50 per cent stake in Angola's highly-lucrative deepwater Block 18. The remaining 50 per cent stake is held by British-based industry giant BP. SSI is the product of a joint venture between SOOG and local Angolan state-backed oil firm Sonangol Block 18, which is 5,000 sq km large, includes the Greater Plutonio project, which is divided into East and West zones. While the East Zone previously came on stream back in October 2007, the West Zone is still under development. According to figures from Sinopec published in November of last year, the in-production East Zone has proven and probable reserves of 238mn barrels of oil. The current output from the East of the block stands at 240,000 bpd.
An important factors in Sinopec's acquisition of the oilfield, was to allow the Chinese firm to reduce its level of dependence on outside sources. The company has been feeling the squeeze of volatile oil prices over the past few years. This problem has been exacerbated by tightly regulated domestic prices for refined products.
While Sinopec's domestic industry rivals PetroChina and China National Offshore Oil Corporation (CNOOC) have been far more active in bidding for overseas projects, it seems that Sinopec is starting to play catch-up. The firms play to Angola may well herald the rise of a new player in the already competitive market for overseas oil assets.

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