Sinochem Group is playing catch-up with China’s big three oil majors

China’s Sinochem Group wants to buy a 35% stake in the Petroleo Brasileiro SA (Petrobras) offshore Parque das Conchas project for $1.54 billion, Petrobras said in an e-mailed statement on August 16. The license includes the Ostra field that pumped 21,000 barrels per day (bbl/d) in June, according to the country’s oil regulator.

Petrobras also agreed to sell minority stakes in Gulf of Mexico oil fields for $185 million, a stake in a petrochemicals company for $364 million (870 million reais), and a 20% stake in a power company in Brazil’s Rio Grande do Norte state for $15.8 million (38 million reais). The sales are subject to regulatory approval.

To help finance approximately $47 billion a year in investments through 2017, Petrobras is selling debt and $9.9 billion in assets. The company is also scaling back its operations abroad and curbing cost growth in Brazil as it develops the largest group of crude discoveries in the past decade and builds refineries, Bloomberg reported. On August 12, Petrobras Chief Financial Officer (CFO) Almir Barbassa said his company would accelerate asset sales during the second half of the year.

Petrobras is selling stakes ranging from 33% to 100% in the MC 613, GB 244 and EW 910 blocks in the Gulf of Mexico that are all in production, the company said without specifying the buyers.

India’s ONGC tries to block Sinochem deal

However, just a few days after the disclosure UPI reported that ONGC Videsh Ltd. (OVL), the overseas arm of Indian explorer ONGC, is planning to exercise its pre-emption rights to block Sinochem Group from buying the 35% interest in Petrobras oilfields for $1.54 billion. OVL holds a 15% stake in the Parque das Conchas block in question.

Complicating the picture, Petrobras is considering selling its 35% stake to Chinese oil major Sinopec, the Press Trust of India reported on August 19, pushing OVL to consider buying out the Petrobras share to block the Sinochem bid.

Sinochem hasn’t commented on ONGC’s alleged block of its purchase. The last mention of the pending deal was on Sinochem’s corporate website on August 19 when the company said it had signed definitive agreements with Petrobras. Then the details of the deal are listed.

However, even if the deal falls apart, the fact remains that Sinochem is increasing its oil and gas profile globally though it still operates in the shadows of China’s national oil companies (NOCs). Now however, the media will have yet another Chinese oil and gas shaker and mover to follow. But who exactly is Sinochem?

Sinochem Group is a Beijing-based conglomerate and currently owns more than 300 subsidiaries inside and outside of China, while its core businesses span energy, agriculture, chemicals, real estate and financial services. It is one of China’s four state oil companies and the country’s biggest supplier of chemical products.

Sinochem is China’s earliest entrant into the Fortune Global 500 and has entered the list 23 times, ranking 119th in 2013. The Sinochem website says the company has more than 60 years experience in the oil industry. However, that’s slightly misleading because it has always been a small player. However, the company’s energy sector does consist of exploration, oil refining, oil trading, storage and logistics, distribution and retail.  Sinochem has interests in several contractual oil and gas blocks, mostly in South America and the Middle East. It also operates gas stations.

The International Energy Agency (IEA) said that Sinochem has expanded its presence in China’s oil sector, although they are relatively small, while Sinopec and CNPC are two dominant players in China’s oil refining sector accounting for 46% and 31% capacity.

Catching up

Sinochem is racing to catch up. The company says on its website that it will strive to develop into a world-famous petroleum company with high quality oil and gas assets.

Last year, the National Development and Reform Commission (NDRC) approved Sinochem’s 12 million metric ton (mt) (241,000 bbl/d) 30 billion yuan ($4.9 billion) refinery project in southern Fujian. The refinery is expected to be operational by the end of the year and is earmarked to produce high quality gasoline, some which can be exported at premium prices.

In July, Platts reported that Sinochem wants to use better quality crudes in the refinery’s start-up phase and was seeking low sulfur crude though it is set to run on Kuwait medium heavy sour crude.

Other recent disclosures include news that Sinochem Petroleum and Exploration and Production Company obtained qualification for gaseous mineral exploration from the Beijing Municipal Bureau on August 1.

Also in January, Sinochem Petroleum USA, a Sinochem subsidiary, signed an agreement with Pioneer Natural Resources to buy 40% of Pioneer’s interest in 207,000 net acres leased by Pioneer in the Wolfcamp Shale play for $1.7 billion. The deal allows Sinochem to have shale assets in the US as well as gaining firsthand knowledge and experience in the development of unconventional oil and gas, something it can use back home in China’s shale plays.

And, in July the Bangkok Post reported that Sinochem Group and PTT Global Chemical (PTTGC), Thailand’s largest petrochemical producer, forged a partnership to explore joint overseas investment under a memorandum of understanding.

Sinochem’s recent uptick in its oil and gas division is perfect timing. Last week energy consultancy group Wood Mackenzie released a report stating that China’s demand for crude oil imports will grow significantly, requiring $500 billion in spending by 2020 and that by 2020, 70% of China’s oil demand will come from imports.

In light of this paradigm shift in global oil trends, China needs all the assistance it can get, including help from an ambitious Sinochem.