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China, India zero in on Kazakh, Myanmar fuel assets

Charlie Zhu
From Reuters, India
August 15, 2005
link to this article.

The upcoming sale of two major oil assets in Asia is set to generate intense competition between Chinese and Indian state oil firms, giving lie to the notion that the two may collaborate as they scramble for overseas reserves.

China National Petroleum Corp. (CPNC) and India's Oil and Natural Gas Corp. (ONGC) are in the running for PetroKazakhstan Inc., a $3.2 billion Canada-based company with all its assets in central Asia.

The expected sale by Chevron Inc. of its $700 million-plus gas field stake in army-ruled Myanmar is also set to stir up Chinese and Indian interest. Top firms from both nations are already major investors in the gas-rich Southeast Asian country.

Ultimately, however, both could fail if project partners opt to excercise their pre-emption rights, forcing the two to search even harder for a dwindling pool of regional oil and gas prospects to help fuel their fast-growing economies.

India's ambitious oil minister, Mani Shankar Aiyar, has urged Chinese and Indian state energy firms to collaborate to prevent acquisition costs climbing higher. But heated contests for these two latest assets illustrate the difficulty of joining forces in the high-stakes game of oil security.

The PetroKazakhstan sale will not be smooth, analysts say. PetroKazakhstan has had rocky ties with Kazakh authorities. It was also caught in a battle with Russia's LUKOIL, its partner in a joint-venture in the Central Asian country.

"I know that obviously the Chinese would be interested and the Indians may be interested. But at the end of the day they need to work with the Kazakh government and they have got to settle all the ligitation with LUKOIL," said a top investment banker familiar with the Kazakh oil industry.

CNPC, parent of PetroChina, is better placed to win the auction as PetroKazakhstan would complement its already substantial presence in Kazakhstan, sources said.

CNPC has built a mega pipeline pumping Kazakh crude oil to energy-starved China, which is especially desperate for an overseas oil interest after having lost in the race to acquire Unocal Corp.

"This is a complex issue. There are lots of legal issues," a source familiar with the Chinese company said of hurdles faced by the PetroKazakhstan sale. "We think CNPC is a front-runner."

An Indian oil ministry official told Reuters on Sunday ONGC had submitted a bid to acquire PetroKazakhstan. Goldman Sachs, financial adviser for PetroKazakhstan, declined to comment, while CNPC officials were not immediately available.

Sources familiar with the bidding process said ONGC had a lower chance of winning the company. Even if ONGC placed the highest bid, the Kazakh government might exercise its first right of refusal before onselling it to CNPC.

The Kazakh government has said it might exercise its rights to block any sale of assets in the country by PetroKazakhstan.

PetroKazakhstan's New York-listed shares last traded at $43.53, surging more than 70 percent since mid-May. Russian investment bank United Financial Group said in a research note on Monday any bidder would need to pay a premium for a controlling stake.

Assuming long-term Brent prices at $35-$40 a barrel, "a bidding range of between $45-$50 a share is justified," it said. Brent crude is trading above $66 a barrel on Friday.


MYANMAR GAS ON THE BLOCK?

PetroKazakhstan and Chevron's Myanmar assets are not expected to get much attention from Western majors because of regulatory or legal risks.

U.S. oil producer Unocal, which has just been taken over by Chevron, has faced a series of protests from human rights activists over its business in Myanmar.

Chevron has not yet made public its plan on the Myanmar assets, which include a 28.26 percent stake in the offshore Yadana field, which mainly supplies the Thai market, and a gas pipeline. But it is widely expected to sell its stakes in the country to avoid more protests or lawsuits.

"So many people are interested, but I don't know if they are going to do it through bilateral talks or an auction," a person close to the situation said. He expects Chevron would kick off the sale later this year.

CNPC and ONGC would certainly want to expand their presence in Myanmar, experts said. India is hoping to build a natural gas pipeline from Myanmar to help meet its growing demand.

But a Merrill Lynch research note said shareholders in Yadana, including Thailand's state-run PTTEP that already owns 25.5 percent stake in the field would most likely be the winner as it could exercise its pre-emption right.

It is not clear whether the other Yadana shareholders, France's Total SA, which holds a 31.24 percent, and the Myanmar Oil and Gas Enterprise, with a 15 percent stake, would also exercise their first right of refusal.

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