MADRID/BEIJING, (Reuters) – China’s Sinopec Group said yesterday it plans to buy 40 percent of Repsol’s deepwater oil assets in Brazil for $7.1 billion as the Asian giant expands its presence in resource-rich Latin America.
China has invested heavily in natural resource projects overseas to feed its surging domestic economy and is now on track to be the biggest foreign direct investor in Brazil for 2010 — underscoring the trend of growing investment flows between big emerging economies that are now less reliant on traditional partners like the United States.
Sinopec announced the multibillion-dollar agreement just two days before Brazilians go to the polls to elect a new president. Dilma Rousseff, the handpicked successor of outgoing President Luiz Inacio Lula da Silva, is widely forecast to win the election.
The deal would help Repsol Brasil, a unit of Spain’s largest oil company, develop costly subsalt deposits that were discovered in 2007 and comprise one of the world’s biggest petroleum frontiers. Experts believe the vast subsalt area may hold 50 billion barrels of crude.
“Oil demand should grow, with the global economy recovering in the coming years,” said Erick Scott, an analyst at Sao Paulo-based brokerage SLW. “Brazil is one of the countries with the most potential for growth because of the subsalt reserves, so that’s why they’re coming here.” Sinopec is also bidding for oil and gas assets of Brazilian startup firm OGX worth a potential $7 billion, sources told Reuters last month.
A source at OGX, controlled by billionaire Eike Batista, told Reuters on Friday the deal with Repsol has no effect on negotiations with potential buyers for assets in the Campos basin, where most of Brazil’s oil output comes from.
“One thing has nothing to do with the other. We should have something on that soon,” the source said.
Repsol Brasil had filed to sell shares in an initial public offering in Sao Paulo, but with the Sinopec deal, the IPO has been canceled, said Miguel Martinez, chief operating officer of Repsol.
With stakes in 16 offshore exploratory blocks, the company has had seven discoveries so far, all of them in the Santos basin off the coast of Sao Paulo. Repsol Brasil’s stakes give the company control over reserves of 1.16 billion barrels of oil equivalent (BOE) from the discoveries, according to an IPO prospectus.
More broadly, mergers and acquisitions in Brazil’s oil sector could flourish in coming months as global oil companies look to get a piece of the deepwater reserves.
Licensing rounds to explore oil in the country have been suspended since 2007 and with voting on Brazil’s new oil law on hold for now, the only way for companies to get in on the subsalt wells appears to be through mergers and acquisitions.
