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Financial Times: Resource-starved countries fuel spree

By Carola Hoyos in Vienna
Published: March 15 2007 02:00 | Last updated: March 15 2007 02:00

State-owned oil and natural gas companies last year went on a $57bn shopping spree, accounting for a third of the value of all transactions in oil and gas exploration and production worldwide, according to an industry report out next week.

Statoil’s $32bn merger with fellow Norwegian Norsk Hydro in December accounted for more than half the value of all the deals.

But it was China’s and India’s drive to secure oil and gas resources for their fast-expanding economies and the increasing trend of resource nationalisation, that fuelled the rest of the buying spree.

As a result national oil and gas companies have assumed an ever greater influence on the industry in recent years.

Their reach last year was global, striking many of the biggest oil and gas deal in most of the regions, according to a report by Harrison Lovegrove, a London-based corporate advisory firm, and John S Herold, a Houston-based research and consulting firm, concludes.

In Africa and the Middle East, China’s Cnooc clocked up the biggest transaction with its $2.7bn deal with South Atlantic Petroleum for a 45 per cent stake in Nigeria’s Akpo field. In Asia Pacific, a $447m transfer of Chinese assets between China’s Sinopec and China Petrochemical, both state-owned, was the largest.

In Latin America, it was Sinopec and India’s ONGC’s $850m purchase of the Colombian assets of Omimex. In the former Soviet Union, Gazprom paid $7.5bn in December for part of Royal Dutch Shell’s stake in the Sakhalin 2 natural gas project, although this was effectively a forced sale under pressure from the Russian government.

In Europe, TAQA of the United Arab Emirates spent $694m on BP’s Dutch exploration and production unit.

Another emerging trend was that of the hunt for proved reserves of natural gas, accounting for 53 per cent of all oil and gas deals last year. It was the biggest percentage recorded by the report’s authors and only the second time in a decade that more proved gas reserves than oil reserves changed hands.

In fact, four of the top-five deals were mainly for gas reserves, some of them accounting for significant volumes of unconventional gas reserves, which are harder to tap but becoming increasingly important as the traditional gas fields of the US and other countries begin to age and their production declines.

The big gas-dominated deals of 2006 included: the Gazprom-Shell deal, Statoil buying Norsk Hydro, Anadarko purchasing Kerr-McGee and Anadarko buying Western Gas Resources. The biggest oil deal last year was put together by Shell, which offered to pay C$8.7bn ($7.4bn) for the part of Shell Canada it does not own. It is still waiting to find out if enough minority shareholders accept its offer.

Total transaction values rose for a straight third year, reaching $166bn in 2006. The buying and selling of oil and gas assets, as opposed to corporate mergers and acquisitions, reached a record high of more than $60bn. But the number of deals fell and the rate of increase in value was far smaller than that of the previous two years.

In fact, 2006 would have been a disappointing year had December not brought with it two big deals: Gazprom’s purchase in Sakhalin 2 and Statoil-Norsk Hydro, it notes.

Companies continued paying high prices to secure reserves they have trouble finding through exploration. In 2006, the average price paid for a barrel of proved oil-gas reserves worldwide rose 34 per cent to $12.86 as oil prices peaked near $80 a barrel last summer.

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