Sinopec, CNOOC Step up for OGX Bid – Analyst Blog

China’s initiative to acquire overseas properties seems likely to continue with the recent bidding process for stakes in assets owned by the Brazilian oil and gas companies OGX SA. Sinopec (SNP) and CNOOC Ltd. (CEO)  were likely to launch a joint bid for this $7 billion deal, as per news published in Reuters.

 

After a series of hydrocarbon finds in recent months, OGX, a part of Brazil’s EBX industrial conglomerate, is now conducting exploration activity in 29 blocks in Brazil and is mostly focused on shallow water exploration.

 

Apart from the above mentioned Chinese companies, other potential bidders include Chevron Corp. (CVX), Statoil ASA (STO) and ExxonMobil Corp. (XOM).

 

The OGX deal is another potential step toward the country’s international expansion. China has become the biggest foreign direct investor in Brazil this year. Recently, Sinochem Corp. won a stake in Peregrino in Brazil for $3 billion.

 

In May, another Chinese energy giant PetroChina Co. Ltd. (PTR) said that the company will invest approximately $60 billion to increase its overseas oil and gas production to 4 million barrels per day.

 

China’s impressive economic growth has significantly increased its demand for oil, natural gas and chemicals. This growth momentum presents attractive opportunities for industry players that can meet the country’s fast-growing energy needs.

 

While the international inventory of development projects will help these industry players  sustain long-term growth, domestic resources such as offshore Bohai Bay and deepwater South China Sea are under explored and remain core areas for delivering growth.

 

However, fuel price caps and heavy taxes offset most, if not, all of these positives, in our view. Our short-term Neutral recommendation for SNP, CEO and PTR remains unchanged at this stage with the Zacks #3 Rank (Hold).