The Wall Street Journal: China Extends Resources Push With Global Deals

HONG KONG -- Corporate China struck deals Thursday to buy Syrian oil assets for $2 billion and to take a significant stake in an Australian iron-ore producer, furthering its quest to secure natural resources abroad.

China Petroleum & Chemical Corp., known as Sinopec, won the bidding for Tanganyika Oil Co., edging out Indian rival Oil & Natural Gas Corp. for access to the Canada-listed company's Syrian fields.

Separately, Chinese steel producer Jiangsu Shagang Group Co. made a complex deal to merge its Australian assets with Grange Resources Ltd., giving it a 45% stake in a combined entity that would be valued at one billion Australian dollars (US$833.7 million).

China's foreign acquisitions have been dominated by efforts to secure resources to satiate its economic engine. So far this year, Chinese companies have completed $26.3 billion worth of deals for businesses in the oil, natural-gas and mining industries, according to data provider Dealogic. Natural-resources deals represent 58% of the value of China's total outbound mergers and acquisitions transactions this year.

The Tanganyika transaction strengthens China's ties with the oil-rich Middle East. The company is based in Calgary, Alberta, and listed on the Toronto Stock Exchange, but its oil production comes from Syria, which the U.S. State Department lists as a state sponsor of terrorism.

Still, Syria is a minor player in oil. Many of its fields are in decline, and its production last year accounted for only 1.6% of the Middle East's total, according to the BP Statistical Review of World Energy. In the three months ended June 30, Tanganyika posted gross average daily oil production of 16,700 barrels.

Chinese state oil companies have sought resources in many places where U.S. and European oil majors are reluctant to plant their flag. The latest deal follows an earlier acquisition by China National Petroleum Corp. and ONGC of a Syrian oil field owned by Petro-Canada Co. Sinopec is also developing a field in Iran, while rival PetroChina Ltd. is exploring for resources in Sudan.

The bidding for Tangayika pit Sinopec against ONGC for the second time this year. ONGC beat Sinopec to acquire London-listed Imperial Energy Corp., whose assets are in Russia, for $2.6 billion.

China's decision to target resources in politically risky nations comes after it suffered a major setback in the 2005 failed $18.5 billion hostile bid by China National Offshore Oil Corp., or Cnooc, to buy Unocal Corp. More recently, China has succeeded in extending its reach by taking a different approach. Cnooc unit China Oilfield Services Ltd. last month launched a $2.5 billion friendly takeover of a Norwegian oil field services provider, Awilco Offshore ASA.

Lehman Brothers Asia Ltd. advised Sinopec on the Tanganyika deal, showing the continued prowess of the future arm of Japan's Nomura Holdings Inc. in helping China land international deals. It also advised Cnooc's oil-field-services arm on the acquisition of Awilco as well as Aluminum Corp. of China Ltd. on its joint bid with Alcoa Inc. for a stake in Rio Tinto PLC. Scotia Waterous Inc. advised Tanganyika.

Sinopec's offer for Tanganyika is 31.50 Canadian dollars (US$30.38) a share. That represents a 21% premium to the company's Wednesday close of C$26 a share. The transaction has been approved by both companies' boards but still needs regulatory approval. Tanganyika earned a $29.8 million net profit on revenue of $78.2 million in the first half of this year.

China's search for mining resources has focused on Australia. Booming demand for steel in China has driven up iron-ore prices and pushed steelmakers like Jiangsu Shagang to increase their investments in Australia. Sinosteel Corp. this year succeeded in a hostile bid for Australian miner Midwest Corp., a deal that was finalized in recent weeks.

Grange Resources said Thursday it plans to merge with iron-ore-pellet producer Australian Bulk Minerals, which is controlled by a consortium that includes Jiangsu Shagang. The companies said the deal would shore up funding for Grange's planned US$1.6 billion Southdown iron-ore project. Grange has a market capitalization of about A$219 million.