China Gains Another Foothold in Brazil (STO, PBR, SNP, CEO, BP)

May 21, 2010 by Douglas A. McIntyre

Norway’s Statoil ASA (NYSE: STO) has agreed to sell a 40% stake in its deepwater Peregrino field offshore Brazil to China’s Sinochem Group for $3.07 billion. Statoil retains its 60% share and will be the operator of the field. Production is set to begin in early 2011.

Two other Chinese companies, China Petroleum & Chemical Corp. (NYSE: SNP), or Sinopec, and Cnooc Ltd. (NYSE: CEO) were the other bidders for the stake in the Peregrino field. Earlier this year, Sinopec bought stakes in two offshore projects in Brazil from Petroleo Brasileiro S.A. (NYSE: PBR), Petrobras.

The China Development Bank also agreed in 2009 to lend Petrobras $10 billion over ten years in return for a 150,000 b/d of oil in 2010, and 200,000 b/d for the next nine years. China does not receive any stake in any Brazilian oil field or any contracts for providing services in the oil fields. The loan carries an interest rate of 6.5% and will be repaid in cash, not oil. Sinopec will end up paying for the oil in cash too.

Chinese oil companies have spent large amounts of cash for stakes in oil projects around the world. The Peregrino field is located about 50 miles offshore in Brazil’s Campos basin under about 350 feet of water. Sinopec’s projects are in the much deeper water and face all the risks that came home to roost on BP plc (NYSE:BP) in the ongoing Gulf of Mexico disaster.

Statoil paid about $7.20/b for the Peregrino field reserves in 2008 and sold the stake to Sinochem for about $15.40/b. The sale to Sinochem reduces Statoil’s equity production guidance for 2012 by 40,000 b/d, putting it in a range of 2.06-2.16 million b/d.

Statoil recently fought off a shareholder resolution to divest the company’s stake in the Canadian oil sands. In 2007 Statoil paid $2 billion for the stake.

The Norwegian company, which is 67% owned by the government, has dwindling North Sea production and it seems a bit odd that it would sell off the projected production from the Peregrino field. But the company also needs cash to get its oil sands project up and running by the end of 2010 and to help meet the costs of its other deepwater projects offshore Norway.

A Chinese company was the obvious buyer, given the developing relationship between China and Brazil. Statoil’s shares are up more than 1% this morning on heavy volume.

Paul Ausick