China's state-run Zhenhua Oil has signed a preliminary deal with Chevron to buy the US oil major's natural gas fields in Bangladesh that are worth about $2 billion, two Beijing-based Chinese oil executives said.The move has drawn reactions from Bangladeshi experts.
Anu Muhammad, eminent economist and Member Secretary of the National Committee for Protection of Oil, Gas, Mineral Resources, Power and Ports, told The Asian Age, "The most important part of the issue is whether Chevron would pay our dues because this company caused huge damages to our gas fields which are equal to $2.5 billion. BAPEX could have purchased these gas fields but these fields are being sold to China to cripple BAPEX."
On the other hand, another reputed economist Dr Abul Barakat told The Asian Age that, "I don't see any problem if Chinese companies buy Bangladeshi gas fields run by Chevron. Chinese companies are making investment across the globe.
So, this is nothing unusual that they want to buy the gas fields from Chevron. However, we need to know about the concerned terms and conditions. Chinese economy ranked sixth in the world in 2000 whereas now it holds the second position." Energy expert M Tamim said to The Asian Age, "According to Bangladesh law, any company can buy any organization by complying with government rules." He added, "Now it is important to see whether the Chinese company follows the same agreement which Bangladesh had signed with Chevron."
Md Maqbul-E-Elahi Mashgul, former Director of Petrobangla, remarked that, "The government should have studied at what price the gas fields are being sold. Whether we would be benefited or not depends on the quality of the Chinese company who are supposed to buy these gas fields."
Zhenhua is a subsidiary of China's defense industry conglomerate NORINCO. A completed deal would mark China's first major energy investment in the South Asian country, where Beijing is competing with New Delhi and Tokyo for influence.
Bangladesh, though, holds the right of first refusal on the assets and could block the transaction. The country, via its national oil company Petrobangla, is keen to buy the gas fields and is talking to international banks to raise financing, according to a banking source familiar with the process.
Bangladesh is in the process of hiring global energy consultant Wood Mackenzie to assess the fields' reserves before placing a formal bid to buy the assets, sources familiar with the matter said. They said they were not aware of Zhenhua Oil's competing interest in the Chevron fields.
"As this project is in the process of commercial discussions, we can't comment based on our company policy," said Zhang Xiaodi, Zhenhua Oil's spokesman. Zhenhua Oil is a small oil and gas explorer that despite its connections to China's defense industry is dwarfed in comparison to state energy giants PetroChina (0857.HK) and Sinopec (0386.HK). It is trying to formalize its deal with Chevron by June, after the two companies signed a preliminary pact in January, the two senior oil executives told Reuters.
Zhenhua will partner with China Reform Holdings Corp Ltd, an investment vehicle under the State-owned Assets Supervision and Administration Commission (SASAC). Zhenhua will hold 60 percent of the deal and China Reform 40 percent, the two executives said.
The executives declined to be named as these discussions were not public. Chevron, in an e-mailed statement, confirmed that it was in commercial discussions on its Bangladesh assets, but would not comment further as a matter of policy.
Chevron had said in October 2015 that it planned to sell about $10 billion worth of assets by 2017 including geothermal projects in Indonesia and the Philippines and gas fields in Bangladesh amid a prolonged slump in energy prices.
Bangladesh knows that Chevron is in talk with global companies, but has no specific knowledge about Zhenhua's interest, said Nasrul Hamid, state minister for power, energy and mineral resources."This is Chevron's matter. We'll not interrupt but we are supposed to get the first priority," he said when asked if Bangladesh would try to block the China deal.
"We will place a formal bid only if the project is viable," Hamid said. Chevron sells the entire output from its three gas fields - Bibiyana, Jalalabad and Moulavi Bazar, which account for more than half of Bangladesh's total gas output - to state energy firm Petrobangla under a production sharing contract.
ZHENHUA BEAT OUT CHINA RIVAL
With output and revenue slashed by low oil prices for the last nearly three years, China's state energy firms are under pressure to step up efforts to boost reserves and profits as Brent crude LCOc1 stabilizes around $55 a barrel.
Zhenhua Oil appears to have outrivaled competing bidders by partnering with the state investment vehicle China Reform, the Chinese executives said.
Geo-Jade Petroleum Corp (600759.SS), an independent Chinese oil and gas explorer, was a close competitor with a bid at $2.3 billion, said one of the executives.
"Possibly because Zhenhua is a state-owned company and has the backing of China Reform, that's why it was picked by Chevron," said the executive. Zhenhua Oil has oil and gas operations in Iraq, Kazakhstan, Syria, Myanmar and Egypt.
If the Bangladesh deal materializes, it would hand the Chinese firm 16 million tons a year of oil equivalent output, including natural gas and condensate, a scale that would make it China's fourth-largest oil and gas producer, the two Chinese executives said.
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