Wednesday, September 14, 2005

Chinese Firms to Pay $1.42 Billion For EnCana Oil Assets in Ecuador

September 14, 2005; Page A3

A joint venture of Chinese petroleum companies agreed to buy EnCana Corp.'s oil and pipeline assets in Ecuador for $1.42 billion, as China continues to seek energy reserves world-wide.

EnCana, a big Canadian oil-and-natural gas producer, said it agreed to sell the unit to a venture called Andes Petroleum Co. An executive with China National Petroleum Corp. confirmed that CNPC was involved in the deal. It wasn't clear which other companies might be participating.

By buying EnCana's assets in Ecuador, Andes Petroleum is acquiring daily oil production of 75,000 barrels and proven reserves of 143 million barrels. The price amounts to $9.96 a barrel of oil equivalent of proven reserves. Andes is also purchasing EnCana's 36% interest in a 310-mile Ecuadorean pipeline, which has the capacity to handle 450,000 barrels of oil a day.

India had also been interested in the assets, as the two countries seek supplies to feed rapidly expanding economies and satisfy their growing thirst for oil and natural gas. ONGC Videsh Ltd., the overseas-exploration unit of India's state-run Oil & Natural Gas Corp., had expressed an interest in the assets last year.

The two countries' hunt for energy supplies has taken them around the world. Last month, China National Petroleum agreed to acquire PetroKazakhstan Inc., a Canadian company with energy assets in Kazakhstan, for $4.18 billion, beating out ONGC.

In April, Cnooc Ltd., the publicly traded arm of state owned China National Offshore Oil Corp., paid 150 million Canadian dollars (US$126 million) for a 17% stake in closely held MEG Energy Corp., a Calgary, Alberta, energy company with a project involving Canada's oil sands, a technically challenging but potentially lucrative oil source. The following month, China Petroleum & Chemical Corp., or Sinopec, agreed to pay 150 million Canadian dollars for a minority stake in another oil-sands project in Alberta.

But China's biggest effort faltered earlier this year, when Chevron Corp. of the U.S. beat Cnooc in a bidding war over Unocal Corp.

For EnCana, the asset sale is part of a plan to sell more than $10 billion in noncore assets while focusing on its reserves in North America. It entered Ecuador in 1999. EnCana said it plans to use the proceeds to buy back stock and reduce debt.

In North America, EnCana is focusing on so-called unconventional oil and gas reserves, including oil sands.

The sale of the Ecuadorean assets is expected to close before year's end, subject to approval by the government of Ecuador, EnCana said.


China Asserts Oil Concerns Are Misplaced

Beijing Backs Its Strategy
Of Using Domestic Sources
Despite Slow Output Rate

September 14, 2005

BEIJING -- China's rising energy consumption shouldn't worry the rest of the world, a senior Chinese official said, but statistics he released about domestic oil production showed the country will likely rely increasingly on foreign oil imports in coming years to fuel its booming economy.

The comments from Zhang Guobao, vice chairman of the National Development and Reform Commission, come against a background of sustained high oil prices and recent Chinese efforts to acquire major overseas oil assets.

Concerns about the impact of surging Chinese oil demand are misplaced because the country's oil strategy is based on raising production from domestic oil fields, said Mr. Zhang, whose commission is China's top planning agency.

"It is quite unnecessary for the world to overreact to the growth of China's energy consumption, since its dependence on the world is insignificant," Mr. Zhang told reporters. "The fundamental principle of China's energy development is to rely on domestic sources."

Mr. Zhang said China's oil production in 2005 would amount to 180 million tons, or 3.5 million barrels per day, a marginal increase from the 2004 figure. He said China had no intention of buying oil now to fill its planned strategic petroleum reserve because of the current high levels.

"Given high oil prices, it will be risky for China to buy oil now to establish the reserve," he said. "We will look for other ways to fill energy reserves gradually."

Benchmark light, sweet crude-oil futures for October were at $63.58 at noon on the New York Mercantile Exchange, up 24 cents from Monday's close.

Mr. Zhang's remarks came a day after China said imports of both crude oil and refined products fell last month, partly a result of state-owned companies' unwillingness to make up for the widening premium of international products' prices to domestic prices.

The country imported 8.76 million metric tons of crude oil in August, a decline of 6.1% from a year earlier, according to preliminary data released by the General Administration of Customs.

For the first eight months of this year, crude imports rose 3.9% to 83.12 million tons, or the equivalent of 2.51 million barrels a day.

Chinese oil output in recent years has increased much more slowly than domestic consumption, as new developments in western China and offshore have failed to keep pace with declines at older fields in the east. Out of China's total oil consumption rate last year of 6.7 million barrels per day, almost half -- or about 3.2 million barrels per day -- came from imports, according to BP PLC statistics, which are widely used in the oil industry.

China's own statistics put the country's 2004 oil imports at less than two million barrels per day.

Analysts say they can't account for the vast discrepancy in those figures.

Wu Kang, a fellow at the University of Hawaii's East-West Center in Honolulu, estimates that import demand will swell to five million barrels per day by 2010, while Adrian Loh, an analyst at Merrill Lynch in Singapore, believes they will reach twice that level, pushed by rising use of automobiles and continuing high economic growth rates.

In recent months Chinese oil companies have made two attempts to purchase sizable oil properties abroad. An $18.5 billon bid by Cnooc Ltd. for U.S.-based Unocal Corp. elicited widespread opposition in Washington and was spurned in favor of a lower bid from Chevron Corp.

A $4.2 billion offer by China National Petroleum Corp. to buy a major oil producer in Kazakhstan is currently awaiting approval by the Kazakh government.

U.S. critics of China's foreign oil acquisition strategy say it is focused on rogue states like Iran and Sudan, and is aimed at taking control of scarce oil supplies around the world. The critics also blame rising demand from China -- and India -- for rapidly rising oil prices, which recently traded above $70 a barrel.

In his remarks, Mr. Zhang rejected those charges, saying the real reason for higher prices was speculation in the marketplace, political turbulence in key oil-producing areas, and underproduction among some major suppliers.


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