Financial Times: Sinopec 'would be coup for Lord Browne': “It is understood that other oil majors, including ExxonMobil, Royal Dutch Shell and Chevron, have been in discussions with PetroChina, CNOOC and Sinopec, China's three state-controlled oil groups. Their goal is to secure as much access as possible to the fast-expanding Chinese market…”: Friday 14 October 2005
By Francesco Guerrera in Hong Kong and Thomas Catan, Carola,Hoyos and Kate Burgess in London
Published: October 14 2005
A substantial agreement with China's Sinopec would be much in BP's style and would represent another coup for Lord Browne, the oil group's chief executive, investors and analysts said.
Investment bankers and oil industry experts in Asia said such an agreement would spur BP's rivals into speeding up their negotiations with Chinese oil companies.
It is understood that other oil majors, including ExxonMobil, Royal Dutch Shell and Chevron, have been in discussions with PetroChina, CNOOC and Sinopec, China's three state-controlled oil groups. Their goal is to secure as much access as possible to the fast-expanding Chinese market, whose demand for energy is expected to rise exponentially in the next few years.
Given the political sensitivity of any Sino-foreign alliance in the oil sector, most observers feel that Beijing would only allow one such agreement at first, leaving other international groups at a disadvantage.
"If they are going to do it, the Chinese will want to do it gradually with one test case before opening the doors wide open to foreigners," a Hong Kong-based investment banker said.
Jamie Hooper, manager of the F&C UK Equity Fund, said: "The management team running BP is very proactive, so such a move would certainly reflect their style. They have a track record of being early movers in gaining access to large underdeveloped reserves. For example, the partnership with TNK in Russia confirms their ability to implement potentially tricky and politically sensitive deals."
BP accounts for 9.5 per cent of the F&C UK Equity Fund.
But other analysts and investors used stronger adjectives to describe the hurdles BP would face trying to make such asubstantive agreement in China, which sees energy as a strategic issue it is loath to give foreigners too much control over.
Some were sceptical an agreement could be reached to satisfy both sides. For political reasons, it seems unlikely the Chinese authorities would allow BP to purchase half of Sinopec as BP did with the far smaller TNK in Russia. But many felt it was unlikely BP could accept a minority stake in the Chinese state company.
Initial reactions by Sinopec and the Chinese government have not been welcoming, people close to the talks said. But they said this had not discouraged BP.
"It would be a fantastic deal for BP if they could pull it off,"said Stewart Johnstone, vice-president at Charles River Associates, the consultancy.
It could also be good for Sinopec. The company is China's largest refiner but has less access to oil and gas than other Chinese companies. With a match-up, BP would get access to markets, while Sinopec would get upstream acreage and access to technology, Mr Johnstone said.
One area of potential mutual interest to BP and China lies in gas. First, an agreement with Sinopec could assist BP-TNK in getting Kovytka gas into China, though they would need support from Gazprom to succeed. Second, BP could work with Sinopec to establish it as the number two or equal number one liquefied natural gas producer in China.
Citigroup was far more negative about an agreement, doubting it would be in the interest of BP. The investment banks said in a research note: "Anything larger could be seen as increasing BP's risk profile too much."
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