China National Petroleum to Acquire 49% Stake in Kazakhstan Gas for $10 Billion

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Researched by Industrial Info Resources (Sugar Land, Texas)--In an effort to procure global energy assets and strengthen its fuel security, China National Petroleum Corporation (CNPC) (Beijing), China's largest oil and gas producer, will buy a 49% stake in Kazakhstan's AO MangistauMunaiGaz (MMG) (Aktau, Kazakhstan) from state-controlled KazMunaiGaz National Company (Astana, Kazakhstan) for about $10 billion.

China faced competition from Russia and India, which were also looking to buy a stake in MMG. MMG has the rights to operate 36 oil fields, of which 14 are under development. The company also holds a stake of 58% in the Pavlodar refinery, which is the largest and most advanced refinery in Kazakhstan with a capacity of 162,666 barrels per day (BBL/d). China is identifying opportunities to purchase fuel assets in neighboring countries to bring down its dependence on sea routes for oil transportation. The country is also looking at long-term energy contracts to provide sustained and steady sources of fuel for its rapidly growing economy.

Kazakhstan is the second largest energy producing country in the former Soviet Union and holds about 3.2% of the proven global oil reserves. In 2008, the country attracted investments of $2.1 billion in the oil and gas exploration and production sectors. The country is working closely with China in the oil and gas sector. Recently, the state-controlled Development Bank of Kazakhstan (Astana, Kazakhstan) received a $5 billion loan from the China Export-Import Bank (Beijing, China). The loan will be utilized to import equipment from China to develop the country's infrastructure. CNPC also provided $5 billion in assistance to KazMunaiGaz.

China is likely to extend support in the area of power plant construction, as well. Kazakhstan is in talks with Datang International Power Generational Company Limited (HKG:0991) (Beijing) to develop power projects. China already has a strong presence in Kazakhstan with PetroChina Company Limited (NYSE:PTR) (Beijing), the parent company of CNPC, holding a stake of 66.6% in the Kazakhstan's largest oil producer PetroKazakhstan (Almaty, Kazakhstan).

Senior Kazakh energy ministry officials are expected to meet representatives of China's National Energy Administration to discuss the development of uranium reserves in Kazakhstan. This meeting follows an announcement made by Kazatomprom (Almaty, Kazakhstan) in November 2008, stating that China and Kazakhstan would work together to produce fuel from uranium for domestic use. There are reports that Chinese companies will start exploration and development activity at the Semisbay uranium mine. Kazakhstan, which has the world's fifth largest deposits of uranium, is looking at boosting its economy through uranium exploration.

CNPC is holding talks with global oil and gas companies in order to expand its energy asset base. The firm is contemplating a joint bid with Royal Dutch Shell Plc (NYSE:RDS.A) (The Hague, Netherlands) and China Petrochemical Corporation (NYSE:SNP) (Sinopec) (Beijing) to develop the Kirkurk oil fields in Iraq.

CNPC was the first international firm to invest in Iraq's energy sector after the U.S.-led attack in 2003. In November last year, the company signed an oil service agreement worth $3 billion with Iraq's oil ministry to explore and develop the Ahdab oil field in central Iraq.

CNPC is in talks with Petro-Canada (NYSE:PCZ) (Calgary, Alberta) and Suncor Energy Incorporated (NYSE:SU) (Calgary) to purchase two oil fields in Libya and Syria for $5 billion. Suncor Energy has put off the decision until its merger with Petro-Canada is completed.

CNPC's attempt to buy Verenex Energy Incorporated (TSX:VNX) (Calgary) for $443 million was thwarted by Libya's National Oil Corporation (Tripoli). CNPC was keen to purchase Verenex Energy in order to gain control of an interest of 50% in Area 47 in the northwestern energy-rich region of Libya. The tests conducted in Area 47 indicated a production potential of 16.2 million cubic feet per day of gas and 1,315 barrels per day of oil. National Oil used its first right of refusal and decided to acquire Verenex Energy by matching CNPC's offer of $8 per share.

Fuel-rich nations like Libya and Kazakhstan are drawing international investments in the oil and gas sector. In April 2008, Kazakhstan announced that Bahrain's Gulf Finance House (GFH) (Manama, Bahrain) would invest in developing the energy infrastructure of the country. GFH proposes to invest $300 million each in Kazakhstan and Libya. In Libya, GFH will assist the Economic and Social Development Fund of Libya to build an energy city in Sabratha over an area of 2 million square feet. The city will provide the requisite amenities to international oil and gas majors looking to set up base in Libya. The project, expected to be completed by 2014, will consist of residential, commercial and retail complexes with associated infrastructure such as roads, water, electricity and sewage.

In Kazakhstan, GFH will help establish the Caspian Energy Hub (CEH), the fourth after Qatar, Libya and India. The $10 billion initiative will be developed by GFH in association with PFC Energy (Washington, D.C.), KazMunaiGaz and the government of Kazakhstan. Located in Aktau, the CEH will consist of a technology park, a geophysical data bank, a technical college, an environmental research center, and a global technical training center. Kazakhstan is optimistic that the CEH, which will provide assistance to energy companies on the technical, administrative and human resources fronts, will help the country increase its oil and increase gas production threefold by 2015.

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