Sinopec enters Russia with Udmurtneft purchase

Sinopec made China's first foray into Russian oil on Tuesday by buying a mid-sized unit of BP's Russian vehicle TNK-BP. TNK-BP did not disclose the price of the Udmurtneft deal. It has previously said it was seeking more than $3 billion for Udmurtneft, which produces 120,000 barrels per day and has reserves of 1 billion barrels.
Industry sources said Sinopec had the backing of Russian state oil firm Rosneft, helping it to win approval from the Kremlin, which is keen to cement its ties with Beijing but is also seeking to regain control over the strategic energy sector.
"We assume the deal received clearance from the Kremlin. It would be the first significant acquisition by a Chinese company in Russia," Aton brokerage said in written research.
"We note that Chinese companies are renowned for paying an entrance premium and likely did so in this case, too," it added. Rosneft is the biggest exporter of Russian crude oil to China, while Sinopec is Asia's biggest refiner. A joint bid for Udmurtneft, producing 120,000 barrels per day from reserves of 1 billion barrels, could bolster both firms' positions.
China, the world's second-largest consumer of oil, has so far failed to find a foothold in Russia, the world's number two exporter, despite frequent rumours that Chinese firms are keen to buy into Russian energy and Russian officials' assurances that they would be welcome.
China has been seeking energy assets globally in recent years, but some of its biggest bids have been rebuffed because of political opposition, including last year's bid by CNOOC Ltd for US oil company Unocal. But it has succeeded in building a strong resource base in Russia's neighbour Kazakhstan, where it bought oil producer PetroKazakhstan for over $4 billion last year to fill a pipeline from Kazakhstan to China.
Sinopec's rivals for Udmurtneft included Hungary's MOL, Russian gas monopoly Gazprom and India's ONGC. Gazprom had said it might team up with MOL. But on Tuesday, Gazprom's deputy executive said the price was too high.
"We were not prepared to pay $1.5-$1.7 billion for half of Udmurtneft. MOL had a different view. They were prepared to pay more. The others were prepared to do the same," Alexander Ryazanov told reporters.