November 30th, 2010 | Shanghai Daily CNOOC deal ‘won’t impact earnings’
CNOOC Ltd’s stake purchase in Argentina-based Pan American Energy will boost the Chinese company’s production but analysts see limited impact on earnings due to the high local tax regime.
In a deal announced on Sunday, Bridas Corp, half-owned by CNOOC, agreed to buy a 60 percent stake it doesn’t already own in Pan American for US$7.06 billion from BP Plc, which is selling assets to help cover costs stemming from the Gulf of Mexico oil spill.
CNOOC, which is building on the acquisition of the 50 percent stake of Bridas in March to expand resources in Latin America, said the Pan American deal will boost its proved reserves by 14 percent and production by 10 percent.
Argentina’s tax policies, which cap realized oil prices at below US$50 a barrel, have diminished the attractiveness of operating in that country. JPMorgan estimated earnings per share accretion to be only 1 percent for CNOOC following the deal.
“However, should the (Argentina) government eventually roll back on its taxes to encourage greater exploration and production growth in the country, we see further upside for CNOOC in the longer term,” analysts at Morgan Stanley wrote in a note.
Despite the price caps, the valuation of US$8.23 per barrel of oil equivalent in the latest deal is still attractive compared with CNOOC’s existing reserves of US$32.8, according to Mirae Asset Securities analyst Gordon Kwan.
Chief Financial Officer Zhong Hua told a conference call that the company takes into account prospects of a “reasonable” return on overseas acquisitions.
CNOOC is quickly boosting its reserves to sustain its high production rate.
With almost US$10 billion on its balance sheet and no debts, CNOOC will continue to take advantage of value-driven merger and acquisition opportunities, Kwan said.
By Richard Fu