New round of oil M&As on horizon

Chinese and Sudanese employees work at a Sinopec oilfield in Sudan. [Photo/China Daily]

With world oil prices appearing to have stabilized, analysts said they believe there could be a new round of merger-and-acquisition activities in the sector－as Chinese oil companies took advantage of relatively low asset prices to enter the arena and become active players.

Oil prices have firmed since the Organization of Petroleum Exporting Countries (OPEC) agreed to production cuts last year, but still remain well off peak prices of a few years ago topping $100 a barrel.

Gordon Kwan, head of Asian oil and gas research at Nomura Holdings Inc, said that when oil prices were either declining or fluctuating, it was difficult for buyers and sellers to agree on asset valuations.

"Oil prices have converged to trade in a narrow band of $52-$56 (a barrel)," he said.

"This should foster a more agreeable deal-making environment for both the buyer and seller. At the very least, there should be less disputes over asset valuations."

Analysts say that when the price of crude oil plunged several years ago, a number of oil and gas groups who were highly leveraged became potential distressed asset sellers.

Kwan said Chinese oil companies would likely be on the prowl, because the country's domestic oil production was declining.

"Oil is a finite resource and the more you produce, the less you have left unless you find more of it via new field discoveries," he added.

"The problem with China is that the domestic production increases over the past 10 years are not being matched by new oilfield discoveries."

Song Yen Ling, a senior oil analyst with Platts China Oil Analytics, said in an e-mail that with prices fairly stable, and companies having gone through the past few years focusing on cost controls, it was possible that Chinese companies would on the lookout for assets to acquire again.

Song said domestic production has declined mainly because companies have found it more economical to import crude at current price levels rather than spend resources to keep pumping from mature and aging wells and blocks.

"As crude prices rise, we are likely to see these wells come back online and production recover to levels seen in the last few years," she said.

Nomura's Gordon Kwan said he believed that all three Chinese oil majors－China National Offshore Oil Corp or CNOOC, PetroChina Co Ltd and Sinopec Group－may be interested in acquiring oilfields around the world.