China backs oil firms in hunt for energy

HONG KONG - Cnooc Ltd.’s offering of as much as $4 billion of dollar-denominated debt follows record April bond sales by China’s oil companies, showing state support for an accelerated global hunt for energy resources.

Chinese energy producers raised $6.9 billion, the most in data compiled by Bloomberg dating back to 1999. China Petroleum & Chemical Corp. sold $3.5 billion of notes on April 18, while China National Petroleum raised $2 billion at record-low coupons on April 9. Average yields for oil and gas businesses in the region fell 18 basis points to 4.3 percent, the most in seven months, according to JPMorgan Chase & Co. indexes. That compares with 4.7 percent for regional corporates.

“Driven by the local energy shortage in the region, many Asian oil and gas companies are on a mission to look beyond the region for ways to enlarge their reserve base,” Raja Mukherji, Hong Kong-based head of Asian credit research at Pacific Investment Management Co., said in an e-mail last week. “These companies tend to have close links to the government and often participate in overseas acquisitions on the back of implicit sovereign support.”

Chinese companies have announced $37.6 billion of proposed acquisitions this year as Premier Li Keqiang accelerates the “going out” policy to build global brands and secure raw materials overseas. China Petroleum, China’s largest oil producer, leads with its planned purchase of a $4.21 billion stake in Mozambique assets of Eni SpA, Italy’s largest oil company, data compiled by Bloomberg show.

Overseas acquisitions funded by bond sales will allow for technology transfer, said Mukherji. While China’s shalegas resources may be 50 percent larger than those in the United States, it remains untapped because of technological limitations, he said.

Cnooc, China’s biggest offshore energy explorer, is marketing a four-part sale of dollar bonds for as much as $4 billion, a person familiar with the matter said, asking not to be identified because the terms aren’t set. A borrowing that large would be the biggest note sale in U.S. currency in Asia outside Japan since a $5 billion offering from Hutchison Whampoa in November 2003.

Cnooc intends to use the proceeds of the senior note sale to repay part of a $6 billionshort-term facility that was for the financing of its acquisition of Nexen Inc., according to a stock exchange filing. Cnooc’s Beijing-based spokesman was not available to comment on sale plans.

“One key trend in the oil and gas space is the ongoing mergers and acquisitions, and capital expenditure plans for companies in China,” said Raymond Chia, the Singapore-based deputy head of credit research for Asia fixed-income at Schroder Investment Management, which managed $344.5 billion as of Dec. 31. “We still expect some more to come, as companies take advantage of low borrowing costs.”

Sinopec will set up a 50-50 joint venture with its state owned parent China Petrochemical Corp. to acquire upstream assets in Kazakhstan, Colombia and Russia, according to a March 24 filing. Total capital expenditure is expected to reach $29.5 billion this year,of which $14.4 billion will go to oil and gas exploration and production, according to a separate statement on the same day.

Sinopec has announced at least $4.6 billion of acquisitions since 2011, data compiled by Bloomberg show. Its parent China Petrochemical said on Feb. 25 it agreed to pay Chesapeake Energy $1.02 billion for 50percent of 850,000 acres in the Mississippi Lime formation. Sinopec’s Beijing-based spokesman Lv Dapeng did not answer two calls to his office for comment.

PetroChina, the listed unit of China Petroleum, plans to lift overseas output to 60 percent of its total in the next eight years as the energy producer copes with mounting import costs, price controls and refining losses at home, Vice President Sun Longde said in a news conference in Hong Kong in March.

The company has spent about $5 billion with parent China Petroleum this year on fields in Australia and Africa and plans to invest at least $60 billion this decade on global energy assets.

Even as economic growth in China has slowed, the country has overtaken the U.S. as the world’s biggest energy consumer. Investors are betting that large state-owned enterprises are better positioned to weather the slowdown.

“Investors usually don’t have to worry about the security of such debt, as there is no way in the foreseeable future Sinopec or PetroChina could default,” said Lawrence Lau, a Hong Kong-based analyst with Bank of China Ltd. “In times of economic uncertainty, I would say the appetite for such bonds will only grow.”

Business, Pages 69 on 05/05/2013

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