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CNPC Clears Hurdles for Kazakhstan Oil Canadian Court Favors China Company

Posted on: Thursday, 27 October 2005, 09:00 CDT

By Andrew Kramer

China National Petroleum Corp. was close Wednesday to sealing a deal to buy PetroKazakhstan, a Canadian company owning oil fields and a refinery in southern Kazakhstan.

The Chinese company agreed with the board of PetroKazakhstan on Aug. 23 to a sale price of $4.2 billion. The deal would provide oil reserves close to energy-hungry China's western border.

But Lukoil, the largest private energy company in Russia, sued in Calgary, Alberta, where PetroKazakhstan is based, to block the sale. Lukoil argued it had preemptive rights to buy PetroKazakhstan's share in a jointly owned subsidiary, Tungai Petroleum. Lukoil also offered to match CNPC's offer of $55 per share if the court ruled in its favor.

On Tuesday, the Canadian court ruled against Lukoil, according to PetroKazakhstan.

"There are no further hurdles," Ihor Wasylkiw, a spokesman for PetroKazakhstan, said by phone from Calgary.

He said the companies could close the deal as early as late Wednesday once the court order is published, and if Lukoil does not appeal. CNPC would transfer the funds, drawn from a line of credit from Citigroup, within days.

The deal has implications beyond the roughly 500 million barrels of proven reserves, analysts said. It would indicate openness on the part of Kazakh officials to Chinese investment and encourage completion of a multibillion dollar pipeline, leading to yet more Central Asian oil being exported east to China.

The bidding last summer came as part of a larger scramble by Russian, Asian, European and U.S. companies to break into one of the world's last great untapped oil regions. Kazakhstan holds an estimated 3 percent of global reserves.

PetroKazakhstan now exports crude oil west through several pipeline routes created after the breakup of the Soviet Union. Its oil is also sold to other former Soviet states, Iran and China.

If CNPC acquires the company, PetroKazakhstan will likely export more to China, said Harvey Sawikin, a principal in Firebird Management, a firm focusing on the former Soviet Union.

That is because the sale also increases the likelihood China will invest in extending the Atasu-Urumqi pipeline from Kazakhstan to China, making exports east economically attractive, he said. The pipeline is already partly built.

"This company is going to be supplying more oil to China than it does today," Sawikin said. "Since the Kazakhs want the Chinese to invest billions in pipelines, it's hard for them to deny them the oil to fill it."

CNPC's offer had faced a thicket of challenges both inside Kazakhstan and from competing international energy companies, trying to increase reserves at a time of tight global supply.

In a development reminiscent of the objections of the U.S. Congress to an aborted attempt this summer by another Chinese company, Cnooc, to buy U.S. oil major Unocal, the Kazakh Parliament initially objected to the sale.

But rather than national security concerns, the Kazakh objections appeared to be based on attempts by local oil operators to win PetroKazakhstan's 11 oil fields and refinery, Sawikin said. They were overcome when CNPC agreed to sell 33 percent of PetroKazakhstan to national oil company, KazMunaiGaz.

Source: International Herald Tribune

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