China's CNPC to Buy PetroKazakhstan for $4.2B

State-owned Chinese oil company CNPC (search) plans to buy PetroKazakhstan (search) for $4.18 billion, the companies said on Monday, in what would be China's first successful takeover of a foreign-listed energy firm and the latest move in its aggressive push to secure more oil.

But CNPC's path to closing the deal quickly became more difficult as India's state-run Oil and Natural Gas Corporation Ltd. said it was working on a counter-bid.

The deal would give CNPC access to PetroKazakhstan's 150,000 barrels per day of production — a small fraction of China's 6 million barrels per day of consumption but a step nonetheless for the world's second-largest oil-consuming nation and its fastest-growing major economy.

It also comes just weeks after compatriot CNOOC Ltd. (CEO) was foiled in its bid to acquire the American producer Unocal (UCL) for $18.5 billion.

"It's a very high price but this is a strategic investment. Finally, it's reserves that you can bring to China," said Stephen O'Sullivan, oil analyst at United Financial Group in Moscow.

CNOOC's failure to acquire Unocal, in the face of unexpectedly heavy political backlash in a Washington concerned over America's own future oil needs, was widely seen as only a temporary setback to China's national oil plans.

Indeed, industry sources familiar with the strategy of Chinese state oil companies said they may have put more overseas listed energy concerns on their radar screen, such as Britain's BG, some Canadian oil sand producers, and possibly exploration and production companies listed in Australia or London.

"There is a clear logic for the Chinese in this acquisition as they further strengthen their position in Kazakhstan, whose output is growing fast and which controls 3.3 percent of global oil reserves," said Steven Dashevsky, chief analyst at Aton Brokerage in Moscow.

The deal is not considered a sure thing, however. PetroKazakhstan has a rocky relationship with Kazakh authorities, and has fallen out with Russia's LUKOIL, its partner in a joint-venture in the Central Asian country.

CNPC will also have to contend with a potentially larger offer from India's ONGC, which said it would make a counter-offer if asked to do so by PetroKazakhstan. One oil ministry official, who declined to be named, said the Indian government believes ONGC would make a counter-offer even without a request to do so.

Aton's Dashevsky said his calculations showed CNPC had agreed to pay $69 per barrel of oil production and $7.10 a barrel in reserves.

"I think these are fair multiples bearing in mind legal risks, and the fact that PetroKazakhstan's fields are quite depleted and production has probably reached its peak," he said.

CNPC, the parent of PetroChina (PTR), the world's fifth-largest listed oil company, will pay $55 a share in cash, a 21.1 percent premium to Friday's closing price, said PetroKazakhstan, which is Canadian-listed but has all of its operations in Central Asia.

Hong Kong-based energy equities analysts said they expected CNPC to inject PetroKazakhstan's assets into the Chinese firm's overseas assets joint venture with its listed arm, PetroChina, if the takeover is completed.

A recently established joint venture set up by CNPC and PetroChina is looking at 10 overseas deals, a PetroChina executive said earlier this year.

China already has substantial operations in Kazakhstan, which include a giant pipeline pumping crude to China from the oil and gas-rich former Soviet state.

China imports about 40 percent of its daily oil consumption — an amount roughly equivalent to the entire 2.5 million bpd production of Kuwait and set to increase in coming years.