Sinopec Exploits US$7.1 Billion to Extract Brazilian Oilfields

Following the Sinopec Group's acquisition of the Swiss oil and gas company Addax Petroleum Company for US$7.24 billion in 2009, the company recently invested US$7.1 billion in the acquisition of Spanish Repsol (hereinafter referred to as “Repsol”) company in Brazil. If this acquisition is approved, it also means that Sinopec Group has great room for development in the oil-rich South American market.

In addition, the industry also believes that this asset may be injected into the listed company Sinopec (600028.SH) after the Sinopec Group's acquisition of the Sinopec Group, which will increase the output of Sinopec's existing 40 million tons of crude oil, and stabilize the Domestic crude oil supply will also play an active role.

Cut into the Brazilian market

This time, Sinopec Group’s subsidiary, International Petroleum Exploration and Development Co., Ltd., acquired Repsol Brazil, which will subscribe for the latter’s new shares for US$7.1 billion in exchange for 40% of the shares and the remaining 60% of the shares All for Repsol.

Repsol is the largest industrial company in Spain. In 2009, the company achieved a net profit of 1.559 billion euros, of which the operating profit of the upstream business was 780 million euros. At present, the group’s oil reserves are about 120 million tons, natural gas reserves are 207.9 billion cubic meters (Sinopec is 197.1 billion cubic meters), and oil production is currently about 22.1 million tons.

It is worth noting that unlike Sinopec’s acquisition of Swiss Addax Petroleum Company last year, Sinopec Group did not disclose crude oil production and sales of Repsol Brazil.

A recent research report by Haitong Securities pointed out that Repsol is a foreign company with the most exploration blocks in Brazil. At the end of 2009, it had 23 exploration and development blocks in Brazil, totaling 3,055 square kilometers.

The relevant person of Sinopec Group told the "First Financial Daily" yesterday that Repsol Brazil has currently participated in several major exploration basins in Brazil: Santos, Campos and Espirito Santo. The Santos sub-salt area is one of Repsol’s 10 major development goals.

Brazil is one of the few regions in the world where offshore oil and salt are rich in oil and gas, and Sinopec is entering into the development of oil and gas resources in the country in various ways. In May this year, Sinopec signed a $10 billion oil exchange agreement with Brazil's national oil company and CDB. Sinopec will have a stable oil supply in the next 10 years.

According to an exclusive news report from the reporter, the two oil companies will also explore other businesses, such as the development of mature oil fields in Brazil, joint bids for Brazil and third country oil and gas fields and so on.

High purchase price?

For this acquisition, some people think that the bid may be high. Haitong Securities quoted experts as saying that Sinopec’s $7.1 billion purchase of assets had an asset value of $106.64 billion (adjusted valuation value of $17.773 billion). If the purchase price is converted into oil, it will reach $15 a barrel. In September of this year, another Brazilian company purchased similar assets for US$8.5 per barrel.

However, the $15 is not particularly high in the eyes of other investment institutions. In March of this year, Sinopec acquired a 55% stake in the SSI company held by the group company. SSI has a 50% interest in 18 blocks in Angola. At the time, the acquisition deal was worth $1.678 billion, "corresponding to 93.35 million barrels of equity in the eastern region of Angola, and the purchase price per barrel is 18 dollars." Shen Yinuoguo analyst Zheng Zhiguo believes that the purchase price of 15 to 18 US dollars, The transaction price with the international reserves is quite the same.

From the acquisition of Sinopec in the past two years, it can be found that Sinopec values ​​the rising space and development potential of the company's future production capacity. The actual daily production capacity of SSI's oil and gas blocks in Angola is 225,000 barrels, which is limited by OPEC. Now, there are only 72,500 barrels per day, so the room for improvement in the future will be relatively large. The Addax Company has a total of 25 exploration and development blocks (15 of which are for exploration, 10 are developed, and 17 are distributed at sea), and there are 111 diamonds to be drilled at the same time. The company's 2P oil recoverable reserves are as high as 5.37. Billion barrels.

In addition, many senior executives of the Sinopec Group have disclosed on different occasions that there are plans to inject the Group's crude oil production capacity gradually into listed companies. The enhancement of the crude oil upstream business sector will obviously enhance Sinopec’s self-sufficiency in crude oil.

At present, Sinopec's crude oil processing volume is 180 million tons, but actual crude oil production is only about 40 million tons, and more than 70% of crude oil needs to be purchased from overseas.

Therefore, the 16 million tons of overseas assets of the Sinopec Group, together with the new production of the newly acquired Repsol Brazil, can all be injected into the listed company, which can not only guarantee the supply of crude oil to Sinopec, but also Make a contribution to the profit of listed companies.

Sinopec said that the Brazilian project's transaction also needs to obtain regulatory approval from the Chinese government, and it will also cooperate with Repsol to continue to develop local oil fields.