Chinese company to acquire Canadian energy company''s Kazakh oil assets

27 October 2006

Mumbai: China is pushing deeper into the energy market on its own with its top financial conglomerate CITIC Group agreeing to buy the Kazakhstan oil holdings of Canada's Nations Energy Company Ltd for $1.91 billion.

Under the agreement, CITIC will develop the Karazhanbas oil and gas field in Mangistau Oblast, Kazakhstan.

Nations Energy's Karazhanbas field has proven reserves in excess of 340 million barrels of oil, with current production of over 50,000 barrels a day. It also includes a 100 per cent stake in transport service provider Argymak Trans Service LLP and drilling and training services provider Tulpar Munai Services LLP. The rights are valid until 2020.

"We will focus on cooperating with Nations Energy's current oil customers, suppliers and partners but there are no clear plans to sell oil to China," Xinhua news agency quoted a CITIC source as saying.

The acquisition will "provide CITIC with a proven base for its overseas energy business expansion strategy in one of Central Asia's most dynamic and successful oil producing countries," said Zhang Jijing, director of CITIC.

There has been speculation that CITIC would team up with Indian oil major, Oil and Natural Gas (ONGC), for a joint bid. In the last 12 months, both China National Petroleum and Sinopec have on two separate occasions joined hands with ONGC to submit joint bids for oil assets. CITIC, however, will be going it alone for this acquisition.

CITIC will buy shares in Nations Energy under a Canadian court-approved arrangement. As part of the arrangement, Nations Energy will transfer its non-Kazakhstan assets, namely operations in Azerbaijan, Indonesia and California, to a new company. Ecolo Investments, which owns 76 per cent of Nations Energy, has agreed to support the CITIC takeover, unless a competing bid comes in.

The deal still requires approval from the Kazakhstan government and CITIC expects to conclude the deal by December. The proposed transaction also needs approval of Nations Energy shareholders and courts in Alberta province.

CITIC, a Beijing-based investment group with operations across the globe, has already a presence in Central Asia through construction of a soda ash project in Uzbekistan and supplying railway coaches in Turkmenistan.

Nations Energy was set up in 1996 and acquired the Kazakhstan oil field in 1997. Since then, it has grown production at the oil field from 4,900 barrels per day to an average 41,000 barrels per day in 2005.