canadian conection maybe

Citic prepares bid for Nations Energy

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June 06, 2006
Financial Times
By Enid Tsui and Sundeep Tucker in Hong Kong

China International Trust and Investment Corporation, the government-controlled conglomerate based in Beijing, is preparing a $2bn-plus bid for Kazakhstan-based Nations Energy, according to people close to the deal.


Nations Energy, listed in Toronto and controlled by Indonesian businessman Hashim Djojohadikusumo, operates the Karazhanbasmunai oilfield in the west of Kazakhstan.

Production last year was 41,000 barrels per day, down from an estimated 43,000 bpd in 2004. Wood Mackenzie Consultants has forecast that production could reach 75,000 bpd if the operator had access to better technologies for recovering heavy crude oil.

Citic is emerging as a new player in China’s ambitious pursuit of global energy resources. Beijing has in the past choreographed the acquisition of oil and gas assets by the country’s dominant state-controlled oil and gas companies, China National Petroleum Corporation, Sinopec and Cnooc, so they do not bid against each other.

While little of its diverse porfolio is in the energy sector, Citic has a 4 per cent stake in, and a long working relationship with, Ivanhoe Energy,?the Canadian oil and gas company which is active in China. Ivanhoe also has proprietary technology for converting heavy crude oil into more valuable, lighter oil.

“I will not be surprised if Ivanhoe helps Citic with its expansion into oil and gas,” said David Hurd, head of Asia oil and gas research at Deutsche Bank.

People close to the deal stress that Citic is still in the early stage of preparing the bid and the group, which has more than Rmb700bn ($87.4bn) in total assets, has the financial power to buy energy assets despite the high oil price environment.

Founded in the 1970s by China’s “red capitalist” Rong Renyi, the group was the first commercial venture approved by the Chinese communist government to drive market reform under the country’s late leader Deng Xiaoping.

Today, the group’s activities range from property and aviation to financial services. It is planning to list its banking arm in Hong Kong later this year to raise about $1.5bn.

CNPC, which last year bought Petrokazakhstan for $4.2bn, and Cnooc, which raised $2bn in a secondary share issue in April, were in talks to buy Nations Energy earlier this year.

However, one person close to the deal said: “A few Chinese oil majors have had a look but Citic is now Beijing’s choice to strike a deal with Nations Energy.”

Nations Energy, which is being advised by Credit Suisse in London, is also believed to have discussed possible asset sales with India’s Oil & Natural Gas Corporation.

Analysts forecast that Citic and ONGC could yet bid jointly for Nations Energy, as part of an agreement struck recently by the Chinese and Indian governments to co-operate on global energy acquisitions in order to avoid bidding wars.

Although Nations Energy is headquartered in Calgary, Alberta, the bulk of its operations are outside Canada. Several of its senior executives are based in London.

It has owned the Karazhanbas oilfield in Kazakhstan since 1997, and has more recently acquired operations in Azerbaijan and Indonesia.