Megamajors BP, ExxonMobil Corp., and Royal Dutch/Shell Group have signed separate strategic joint-venture agreements with China's state oil and petrochemical company, Sinopec Corp., to pave the way for their respective expansion plans in the country.
Sinopec is expected to launch a global road show Sept. 25 for its initial public offering on the New York, Hong Kong, and London stock exchanges. The Chinese firm will be ready to hit the market in mid-October. Sinopec is looking to raise up to $3 billion.
Heading up the rest of company news this week is another round in the continuing frenzy of merger and acquisition activity in Canada-notably a couple of big deals involving key Canadian drilling rig contractors.
Meanwhile, in Europe, there are new developments with two of Europe's biggest natural gas companies in relation to the restructuring of the gas industry there.
Elsewhere, the latest action in a pair of legal disputes affects the survival of a Belfast shipyard and the status of a Costa Rican exploration concession.
BP Sinopec investment
BP is planning to invest as much as $400 million in Sinopec's IPO in keeping with its strategy of making inroads into "the world's fastest-growing economies."
The energy giant, under a stand-alone deal, has inked a memorandum of understanding with Sinopec that will extend a cooperative agreement in downstream fuels retailing, LPG distribution and marketing, and purified terephthalic acid (PTA) manufacturing and sales, while developing "options for cooperation" in the upstream sector and integration of refining and petrochemical activities in East China.
BP and Sinopec have also agreed to form a JV to buy, revamp, or build some 500 "dual-branded" gas stations in China's Zhejiang Province, and undertake a project to build a "world-scale" PTA plant-"ideally progressed," in BP's opinion, "with and integrated into the Caojing ethylene cracker projects."
ExxonMobil deal
ExxonMobil subsidiary ExxonMobil Guangdong Petroleum & Petrochemical Co. Ltd., meanwhile, has entered into an agreement with Sinopec that the oil company stated would "significantly increase" its presence in China and "strengthen the cooperation between the two."
Under the deal, ExxonMobil and Sinopec will "jointly study" the development of a number of manufacturing and fuels marketing JVs in the country's Guangdong Province. The possibility of doubling refinery capacity at the Guangzhou Petrochemical Complex-from its current level of 150,000 b/d-will be evaluated, as will be existing petrochemical facilities in the province and the longer-term prospect of developing a "world-class" petrochemical complex there.
ExxonMobil suggested that a fuels marketing JV with Sinopec in Guangdong, which could translate into the construction of as many as 500 service stations in under 3 years, is also on the slate for the two companies.
ExxonMobil's proposal to develop a world-scale refining and petrochemical complex at the Fujian Petrochemical Co. Ltd. refinery site in Fujian Province-a project put forward jointly by ExxonMobil, FPCL, and Saudi Arabia's national oil company Saudi Aramco-is with government authorities now. ExxonMobil said approval of its plans is "expected imminently."
Shell unit venture
Elsewhere, Shell Overseas Investments BV, a Royal Dutch/Shell company, has signed a strategic alliance agreement with Sinopec to jointly develop a "range of opportunities" in exploration and production, oil products and gas marketing, and coal gasification. Shell, at the same time, has agreed to purchase 14% of China's state oil and petrochemical company's IPO up to a maximum of $430 million.
As part of the alliance deal, Shell intends to set up a JV to operate a network of 500 gas stations in "major cities" in Jiangsu Province on China's East Coast. The companies' feasibility study is now under way with a view to having the JV operational sometime next year.
Another facet of the agreement will see Shell and Sinopec exploring for and developing natural gas fields in areas including the Ordos basin in Inner Mongolia and Shaanxi provinces, and the Tarim basin in the Xinjiang Uygur Autonomous Region.
Shell and Sinopec intend to conduct a joint study of the Tabamiao exploration block and the Daniudi development block in the Ordos basin.
In the Tarim basin, Shell and Sinopec intend to carry out a joint study of two exploration blocks and one development block in the Shaya uplift area.
Both joint studies are intended to be followed by joint cooperation in PSCs for exploration and development.
The Shaya uplift is one of the key areas for the supply of gas into the proposed 4,200-km Xinjiang-Shanghai gas pipeline.
The Shell-Sinopec accord also covers a $150 million JV project to build in Shell coal gasification technology at a Sinopec fertilizer plant in Dong Ting in Hunan Province, a project that will be followed by two similar schemes at plants in Hubei and Anhui provinces.
Similar technology will also be introduced to fertilizer plants in Hubei and Anhui provinces.
The 2,000 tonne/day Dong Ting coal gasification plant will convert coal to synthetic natural gas, which will replace naphtha as the feedstock for the plant. It is expected to be ready for start-up in 2003.
The contract is expected to be signed in September, allowing the JV to be set up by the end of the year after approval by the government authorities.
Sinopec IPO
Investment in Sinopec's upcoming IPO has not been limited to oil companies, with Swiss technology group ABB AS announcing it has signed up to an outlay of $100 million as a "strategic investor" in China's state oil and petrochemical company.
Through its ABB Lummus Global unit, the company notes, ABB has been involved in supplying technology for 62% of China's overall ethylene capacity to date.
Sinopec filed its registration documents with the US Securities and Exchange Commission on Sept. 10 and is waiting for it to take effect.
This will be China's second oil and gas company to seek investment from overseas equity markets. PetroChina Co. Ltd., the IPO vehicle for China National Petroleum Corp., raised $3.1 billion through dual listings in New York and Hong Kong in early April this year. And the third, CNOOC Ltd., a unit of China National Offshore Oil Corp., is waiting in the wings. It has announced that the company will launch an IPO in New York and Hong Kong in the first quarter of next year.
Sinopec is an integrated petroleum and petrochemical company with upstream, midstream and downstream operations.
The company is also China's largest refiner, distributor, and marketer of oil products. In 1999, Sinopec operated 25 refineries and processed 88.2 million tonnes of crude oil, representing 50% of the total crude oil processed in China.
Sinopec has the largest distribution network for refined products in China, consisting, as of Apr. 30, 2000, of about 1,100 bulk storage sites and over 13,700 retail gasoline stations.
Its distribution network covers the 19 provinces, mainly located in the more prosperous eastern and southern areas of China that accounted for about 73% of China's population and about 78% of its gross domestic product in 1999.
Canadian M&A action
Merger and acquisition activity in Canada's oil services sector has heated up dramatically with two significant deals announced this month.
Precision Drilling Corp., Calgary, Canada's largest driller, will take over CenAlta Energy Services Inc., in a friendly $220 million (Can.) share swap deal. Precision will also assume $50 million in CenAlta debt.
The deal will increase Precision's fleet of service rigs, in addition to its drilling rigs, to 260 units. Cenalta has 166 service rigs and nine drilling rigs. Precision has been expanding rapidly with a number of acquisitions, including the $317 million takeover of Plains Energy Services Ltd. in June.
In a merger deal, Bonus Resource Services Corp., a mainly service rig operator, will acquire Tetonka Drilling Inc. Tetonka owns 24 drilling rigs and has two more under construction. The share exchange deal is worth about $162 million. Bonus will also assume Tetonka net debt of $25 million. Bonus investors will own 55% of the new company and Tetonka shareholders 45%.
In other Canadian M&A action:
- AEC Oil & Gas, unit of Calgary-based Alberta Energy Co. Ltd., has agreed to purchase all of Calgary-based Westminster Resources Ltd.'s Canadian oil and gas assets for $62.7 million (Can.) in cash. Closing is expected Oct. 19. Completion of the sale is subject to regulatory approvals and to receipt of Westminster shareholder approval. Westminster has scheduled a shareholder meeting for Oct. 16.
- Magin Energy Inc., Calgary, says its offer to purchase all of the issued and outstanding common shares of Place Resources Corp. has expired, and Magin will not be acquiring any Place shares under the offer (OGJ Online, Aug. 25, 2000). About 49.5% of the issued and outstanding Place shares were deposited under the offer. The offer, however, was subject to a condition that at least 662/3% of Place common shares, on a fully diluted basis, be tendered and not withdrawn. Because this minimum condition was not satisfied, Magin will not be acquiring any Place shares. Place shares deposited under the offer will be returned, says Magin.
- Dalton Resources Ltd., Calgary, said that shareholders approved its amalgamation with Tiverton Petroleums Ltd. The effective date of the amalgamation is Oct. 1, with the physical combination of the two companies to begin the last week of September.
- TC PipeLines LP has completed its previously announced $28 million acquisition of a 49% interest in Tuscarora Gas Transmission Co. from a subsidiary of TransCanada PipeLines Ltd. (OGJ Online, July 25, 2000).
- NAL Oil & Gas Trust, Calgary, will sell shares to raise $38.3 million (Can.) to repay outstanding debt, including that assumed with the Draig Energy Ltd. acquisition (OGJ Online, May 30, 2000), and for other corporate purposes. The offering is subject to normal regulatory approval and is expected to close Oct. 2.
European gas developments
BG Group PLC announced the expected completion of its proposed demerge, set for Oct. 23, assuming shareholder approval (OGJ, Mar. 27, 2000, p. 42).
The name for the new holding company of the Transco group will be Lattice Group PLC following the demerger.
The new company will include Transco, the regulated utility that owns and operates the majority of Britain's gas transportation system. This business will continue to be known as Transco. BG International will be known as BG Group PLC.
Meanwhile, four of France's largest gas consumers-Rhodia Group, Pechiney Group, Solvay SA, and Saint-Gobain Group-are taking advantage of the Aug. 10 deregulation of the European Union natural gas market to join forces in calling for gas supply bids from a number of European gas companies, including Gaz de France.
The four firms have a total of 19 sites, each of which consume more than 25 million cu m/year of gas. Together they account for 4% of France's gas consumption.
By joining forces, they will take advantage of high volumes to obtain the best price. Gaz de France says it has already submitted its offer to the companies. The final choice will be made by yearend.
Shipyard rescue
Beleaguered Belfast shipyard Harland & Wolff PLC plans to begin a life-saving corporate restructuring following an arbitration panel's ruling Sept. 14 that the company is owed more than £23 million by US drilling contractor Global Marine Inc.
Harland & Wolff said the outstanding sum-the final installment in a staggered series of payments covering construction of the Glomar Jack Ryan deepwater drillship, the second of two being built under contract for Global Marine-would "provide an opportunity to establish a profitable, viable, and sustainable offshore and shipbuilding industry in Belfast."
Harland & Wolff Chief Executive Brynjulv Mugaas said the ruling was a vindication of the parent company Fred Olsen Energy ASA's belief that the yard's final work scope had been in "complete accordance with the [original] contract."
"This ruling brings to an end the deplorable and thankfully futile attempt to bankrupt Harland & Wolff by withholding the delivery installment due," said Mugaas, "[and] has galvanized our determination to succeed in the expected arbitration to recover the balance of monies due by Global Marine for work completed."
He added that £65 million of Harland & Wolff's claim had been paid on account. Under the panel's ruling, the £31 million is due to be paid by Sept. 28.
A spokesman for Global Marine said the drilling contractor had no plans at present to appeal yesterday's ruling but noted that the larger claim-linked to cost overruns that Harland & Wolff claims were the result of design changes demanded by Global Marine-was seen, "except for small amount of steelwork, to be totally without merit."
Harland & Wolff filed a £133.2 million claim against Global Marine in 1999 after the two companies had a difference of opinion as to changes to work scope and delivery specifications during the construction of the Glomar C.R. Luigs drillship, the Jack Ryan's predecessor, at Harland & Wolff's Queen's Island shipyard.
Mugaas said he hoped the arbitration's outcome would restore market confidence in Harland & Wolff by "reducing uncertainties" as to its future and help it to bring "potential major orders to fruition."
Harland & Wolff now plans to map out a business plan that will "demonstrate the viability of continuing shipbuilding and engineering on Queen's Island," although it acknowledged any restructuring program would involved a "significant reduction in the number of employees" at the yard.
Costa Rican rebuff
Harken Energy Corp., Houston, said it would "vigorously defend its rights" after a recent ruling by Costa Rica's Supreme Court in a concession contract case. Harken said it was unable to take part in the proceedings because it wasn't notified of them in advance.
The preliminary ruling challenges the original bid award of the 1.4 million acre concession contract to MKJ Xploration Inc. of Metairie, La. Harken acquired rights to an 80% interest in the project in November of 1998 from MKJ (OGJ, Aug. 30, 1999, p. 101).
Harken then received a government-approved assignment of the contract from MKJ in June 2000 to Harken Costa Rica Holdings LLC, Harken's 80%-owned subsidiary.
But the native people living in the concession region have challenged the award, saying they weren't adequately consulted before the government awarded the land. The ruling attempts to set aside the original award and requires the Costa Rican Ministry of Environment and Energy to consult with indigenous groups regarding its activities.
Harken said it has already filed a motion for relief, citing lack of judicial due process in the action.
Harken Chairman Mikel D. Faulkner said the company is disappointed by the court's action.
"We intend to diligently work to protect our interest in the contract, but the outcome of our efforts is impossible to predict," Faulkner added. "This action by the courts obviously puts our activities on hold in the country as we seek to get a fair resolution to the dispute."
Other company news
Rounding up other company news:
- Sunoco Inc., Philadelphia, said Sept. 13 that high crude costs and oversupplied lubricant markets contributed to plans to sell a significant portion of its lubricant assets. The branded marketing assets offered for sale include the Kendall motor oil brand plus the customer lists for both the Sunoco and Kendall brand labels; the lubricants blending plant in Tulsa; and the Yabucoa, PR, refinery. Sunoco will continue to operate its Tulsa refinery, retaining its current slate of fuels and base oil products that are sold into process oils, wholesale base oil, and wax markets. Sunoco expects to record a charge to write down the assets to net realizable value in its third quarter results.
- Baker Hughes Inc. has signed a definitive agreement with Schlumberger Ltd. to create a seismic venture to be called Western GECO. The agreement follows a memorandum of understanding signed in May (OGJ Online, May 31, 2000). The transaction is expected to be completed by yearend and is subject to regulatory approvals. Under the terms of the definitive agreement, which was approved by the Baker Hughes and Schlumberger boards, the venture would own the seismic acquisition assets, data processing assets, multiclient seismic libraries, and other assets of Western Geophysical and GECO-Prakla. Baker Hughes and Schlumberger would own, respectively, 30% and 70% of the venture.
- Novus Petroleum Ltd., Sydney, issued an unsolicited detailed merger proposal to Petroz NL, Brisbane, Sept. 12. The Novus offer would allow Petroz shareholders to exchange 4.5 Petroz shares for one Novus share. Initially, on Sept. 14, Petroz was to have considered a proposal from Fletcher Challenge Energy Ltd., a unit of New Zealand company Fletcher Challenge Ltd., to acquire 33.37% of Petroz. But Petroz put off the Sept. 14 meeting, and directors of Petroz will meet as soon as possible to consider the Novus proposal. Royal Dutch/Shell Group recently offered to acquire Fletcher Challenge Energy for $2.3 billion (Aus.) (OGJ Online, Aug. 28, 2000).
- TransCanada PipeLines Ltd. closed the sale of its 17.5% interest in Oleoducto Central SA (OCENSA). TransCanada sold a 7.2% interest in OCENSA to Enbridge Inc. and a 10.3% interest to Empresa Colombiana de Petroleos (OGJ Online, May 4, 2000). In addition, TransCanada has closed the sale of its 50% interest in CIT Colombiana SA to Enbridge Inc. Proceeds from the sales total about $117 million.
- Tosco Corp. has completed the purchase of the 250,000 b/d Alliance refinery in Louisiana from BP (OGJ Online, July 14, 2000). The purchase price was $660 million, plus hydrocarbon inventories.