"Beijing has finally capped an oil deal," said Forbes, as state-owned China National Petroleum Corporation said its $4.2bn bid for Canadian oil producer PetroKazakhstan had been accepted.
The $55 a share offer represents a 21% premium to Friday's closing share price. The deal still needs shareholder approval, with a vote due in October, but CNPC, which owns China's biggest oil producer, Petrochina, looks to have "beaten off" steel billionaire Lakshmi Mittal, whose Mittal Steel joined forces with Indian oil company Oil and Natural Gas Corporation to submit a bid.
The head of ONGC, Subir Raha, said the company would prepare a counter-bid if asked by PetroKazakhstan but the group would now have to pay "a $125m breakup fee" to drop the CNPC deal, said Bloomberg.
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Kazakhstan currently exports about 800,000 barrels of oil a day, and is expected to become one of the world's top oil suppliers within the next twenty years. The two countries are working on a 1,864-mile pipeline at a cost of $3bn, to carry oil to China, and if the deal goes through, China can lay claim to about 12% of Kazakh crude output.
It will be China's first takeover of a foreign-listed energy firm, said Reuters and also the country's biggest overseas acquisition to date. But analysts have warned the deal is "far from complete" Petrokazakhstan has "a rocky relationship" with the Kazakh authorities.
All the same, it turns out "it is easier to buy an oil company in Kazakhstan than in the US", said Lex in the FT, referring to the recent failure of fellow Chinese oil group CNOOC to buy US group Unocal.
And it's a good deal for PetroKazakhstan shareholders. PK has "suffered this year" as Kazakh authorities and Russian joint venture partner Lukoil "have tightened the legal screws". Kazakhstan is looking for back taxes and the Russian group is suing the firm for $256m, alleging it should have been paid more for oil from the partnership. Yet CNPC will pay $7.60 per barrel of oil equivalent of proved and provable reserves "high by historical standards."
But that will be fine by CNPC, whose "mandate is largely shaped by strategic considerations". And the news could also be good for investors in smaller London-listed "Asia-focused" oil companies like Cairn Energy and Dragon Oil with the US still off-limits, they might find themselves well-placed to benefit from China's drive to secure energy supplies
John is the executive editor of MoneyWeek and writes our daily investment email, Money Morning. John graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.
He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news. John joined MoneyWeek in 2005.
His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.
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