China Petrochemical Corporation (Sinopec Group), the nation's second largest oil firm, yesterday agreed to pay US$615 million to British Gas (BG) Group for a stake in an oil and gas field in Kazakhstan, which boasts one of the largest finds of the past 30 years.

The deal came four days after sibling CNOOC Ltd, China's third largest oil company, got the same one-twelfth (8.33 percent) stake in the North Caspian Sea Project from BG at the same price.

The project includes several oil-rich geographic structures and Kashagan oil field, with reserves estimated at up to 13 billion barrels of oil equivalent (BOE).

With the two "cloned" deals, BG sold off all its one-sixth holdings in the project. Other partners now include operator ENI-Agip, Royal/Dutch Shell, ExxonMobil, TotalFinaElf, ConocoPhilips and INPEX.

Analysts said the acquisitions mark another step in China's search for overseas oil and gas reserves to meet its booming economy's energy demands. It is also an important move for a country that wants to reduce its heavy reliance on imports from the Mideast, which accounts for 60 percent of China's imports.

For Sinopec, which has to buy over 75 percent of its oil for processing at its many refineries, the deal is an extra blessing. As its domestic oil production declines, the company is seeking overseas reserves to fuel growth.

"Sinopec Group believes that the acquisition of the interest is a significant step in achieving its strategy of expanding its overseas oil and gas reserves," Sinopec said in a statement.

"The acquisition... will contribute to the balancing of its downstream and upstream businesses," it said.

The long-term nature of the North Caspian Sea Project and the further geographical diversification of its crude oil supply will benefit the company's prospects, it added.

Though the deal is seen as "cheap," analysts also expressed their concerns over uncertainties that may tarnish its attractiveness.

"The reserves of 13-billion BOE are based on a very rough estimation," said an analyst with a Beijing-based investment bank, who declined to be named. "It is hard to evaluate the real reserves now before it starts to operate in 2006."

And production and transport difficulties in the Caspian region, as well as the complicated tax regime in Kazakhstan, could push up costs, said the analyst.

"But high risk also means high return," said the official, adding that the deal lay the foundation for the company's further expansion overseas.

(China Daily March 12, 2003)