Wednesday, September 06, 2006

[world] asset swapping - shell, exxon, bp and sinopec

Exxon itself is a particularly interesting company, not least because of its xx antecedents.In many ways it is entirely innocent but being who they are, they are on a hiding to nothing. They have invested in the environment, they have committed to sustainable development and the company itself laments:Exxon stands as the tallest lightning rod for critics who say the oil industry is profiting at consumers’ expense, and parting payments to its former chairman and chief executive, Lee Raymond, have provoked criticism. Exxon officials said they don’t expect the political anger toward the industry to let up soon.

Citing coming midterm congressional elections, Kenneth Cohen, Exxon’s vice president for public affairs, said: “It seems as if in some of the tight races some of the candidates are trying to run against us instead of their opponent.”On this level, they have a point. On another, it’s a different game.And so to today’s topic – asset swapping, which Amex defines as another name for a fixed-for-floating interest rate swap. Asset swaps are nothing new, except that it is rare in the oil industry because oil asset swaps are complex and difficult to carry off. However, in 1997, Shell Canada and Mobil Oil Canada agreed to do it, strengthening each company's growth portfolios: Mobil-owned assets on the Scotian Shelf (offshore Nova Scotia) in return for Shell's interest in various gas properties in Alberta.

Shell was to receive half the interest Mobil gained in a property exchange in September. Mobil was to get a 30-% interest in Shell's Harmattan East natural gas properties in central Alberta, strengthening Mobil's core assets in western Canada.BG and BP, in August 2002, exchanged North Sea assets - which included producing fields, pre-sanction assets and exploration acreage and the transfer to BP of all BG's interests in the Brae fields, and the transfer to BG of all BP's interests in the Atlantic, Elgin/Franklin and Neptune fields. In 2005, Royal Dutch/Shell and Gazprom signed an asset swap deal that gave Russians a foothold in the oil and gas projects off the coast of Sakhalin Island in Russia’s Far East.

Gazprom got up to 25 percent plus one share in Sakhain-2, the world’s largest liquefied natural gas project; Shell got a 50 percent stake in Zapolyarnoye gas field in West Siberia with an annual output of 100 billion cubic meters of gas, the difference in value compensated through a package of cash and other assets, finalized in 2006. In early 2006, Reuters reported [unattributable unfortunately but Reuters has archives and this derives from their article] that China might consider trading minority stakes in its own Big Three oil companies for energy reserves held by global majors but would not give up sizeable assets in the strategically key state firms.

BP Plc hoped to swap some of its upstream interests for a stake in Sinopec Corp., but Beijing was averse to any deal as bold as BP's 50-50 partnership with Russia's TNK. Instead, Chinese state-owned firms prefer to forge closer ties with the likes of BP, Exxon Mobil Corp. and Royal Dutch Shell, via asset swaps or joint overseas acquires."One possible trend I think we will see emerge is more Western companies being prepared to exchange assets in return for an investing in a Chinese company," said Mark Renton, Managing Director and head of Citigroup's Asia-Pacific Investment Banking."

That collaboration can take many forms, including joint bidding for assets around the world. It could take the form of an asset swap," Renton, who used to head Citigroup's North America energy group, told Reuters. By partnering with PetroChina, Sinopec and CNOOC Ltd. in big upstream acquisitions, the foreign oil giants can gain wider access to China's 6.7 million-barrel-a-day market, bankers say.China imports more than 40 percent of its oil needs and craves for more oil and gas reserves. According to the IEA, Its oil demand is forecast to grow 7.5 percent next year, versus an expected 3.4 percent for 2005 and 15 percent growth in 2004.

"Every day we are thinking about how to secure upstream assets," said Li Dongmei, a senior adviser to Sinopec Corp.Since September, China has signed the 2.35 billion pound takeover of PetroKazakhstan [my own particular interest] by CNPC, PetroChina's parent, and the $1.4 billion purchase of EnCana's Ecuador assets by CNPC and Sinopec Group, parent of Sinopec Corp. That came after CNOOC lost out in its $18.5 billion cash bid for U.S. producer Unocal to U.S. major Chevron Corp.But Beijing was not going for global assets at the expense of losing its grip on state oil majors, thus its rebuff of BP's bid for a big stake in Sinopec. "

The Chinese, by and large I think, would like to control their own destiny," said a top banker at another global bank.BP, the world's second-largest listed oil company, is still pursuing a close tie-up with Sinopec, sources say, although it had recently sold the small stakes it bought in the IPOs of Sinopec and PetroChina for a huge profit.Exxon Mobil and Shell have since followed suit, pocketing billions of dollars in profit by offloading their minor stakes in Sinopec. But analysts and officials at the global oil companies have said the share sales did not herald any shift in their China strategy and they remained committed to the Chinese market.

Soon after its share sales, BP started brainstorming its strategy to grow further in China, including the idea of a large-scale joint-venture with Sinopec.BP and other majors, which have injected billions of dollars into mega petrochemical and refining projects in China, can swap stakes in oil or gas fields slated for the Chinese market for interests in some of Sinopec's or PetroChina's downstream assets.In some cases the Western firms may be able to book oil or gas resources that have yet to find a market. For instance, BP could offer a stake in the Siberian Kovykta gas field to China.BP and Shell have also sold stakes in gas fields in Indonesia or Australia to CNOOC in return for long-term liquid natural gas supply contracts with Beijing.

More of such deals may emerge as China scrambles to boost natural gas consumption.While Sinopec and PetroChina have not discounted giving away more of its retail market, it will be cautious about doing so, analysts said. Indeed, the pair are regretting their retail joint-venture deals with international oil majors, insiders said.China guarantees profit margins for those ventures, all in the country's booming south and east, while profits of their own petrol stations in China are pinched by regulated retail prices."In the short term, business partnership between Chinese and international oil companies should still be largely limited to individual chemical or refining projects in China," said a China-based marketing executive for a global oil major.

For an environmental scrutiny of Exxon, this site might help:For Exxon's point of view, this site might help:I have no crystal ball but who needs one when all you need to do is sit back and scrutinize whom these firms are linking with, in which manner and for what purpose.