DEALS OF THE WEEK: China and GDF SUEZ enter key partnership

Eoin Coyne
Evaluate Energy

China Investment Corp and GDF Suez announced last week that they were entering into a major cooperation framework, which will aid GDF SUEZ in its planned expansion into Asia, in what GDF foresees as being a key growth market. To kick the partnership off, CIC will take a 30% stake in the upstream division of GDF for $3.3 billion and a 10% in the Atlantic LNG project in Trinidad & Tobago for $850 million. The deal represents the largest by a Chinese state controlled company since Petrochina’s failed attempt to take a 50% interest in Encana’s Cutbank Ridge shale gas assets in Canada in February. At $12 per proved and probable boe of reserves, the deal didn’t include the usual premium that Chinese companies are willing to pay to secure global reserves. The annual EBITDA multiple of less than 5.5 also pointed more towards a deal that seeks long term cooperation rather than a Chinese asset grab.

In Namibia, Chariot Oil announced the long-anticipated results of their farm-out tender for certain blocks in their offshore portfolio of assets. One deal involved Norwegian oil service company, Petroleum Geo Services ASA taking a 10% stake in two blocks in exchange for funding 50% of the forthcoming seismic program. More importantly however was the deal that saw BP take a 25% interest in Block 2714A containing the Nimrod “mega structure” which Chariot believes could potentially hold 4.9 billion barrels of oil. For Chariot Oil the farm out allies BP with existing farm in partner Petrobras, in what the company will see as the ideal operating team to progress the Nimrod block forward. Despite its Manaconda oil spill in the Gulf of Mexico BP is still a much respected deepwater operator, while Petrobras brings a vast amount of experience within the geologically similar pre-salt assets offshore Brazil.

Two diverse shale operators merged this week with ZaZa Energy combining its Eagle Ford portfolio of assets with Toreador Resource’s shale oil assets in the Paris Basin of France. The deal will come as a relief to many Toreador shareholders after a dramatic share price fall during 2011. At the start of the year, buoyed by the French laissez-faire attitude towards shale drilling, the market cap of Toreador stood at over $400 million. However following a ban on the practice of hydraulic fracturing in the country due to environmental concerns, the market cap plunged to stand at just $73 million at the time of the deal announcement. The terms of the merger means that Toreador shareholders will gain a 25% interest in 83,000 acres in the Eagle Ford play, which with recent valuations in the play in excess of $10,000 per acre is debatably worth far more than the market cap of Toreador. The share price of Toreador responded to the deal with a 16% rise on the day of announcement.

In Denmark, Hess Corp increased its stake in the South Arne oil field from 57.5% to 64.4% through the acquisition of Noreco’s 6.56% stake for $200 million. Noreco stated the need to improve financial flexibility as the reason for the sale. While in the midst of number of existing investment projects and with a current debt-to-equity of Noreco standing in excess of 100%, the sale will improve the risk profile of the company. The deal announcement coincided with a welcome day on the equity markets involving no major fear induced sell-offs and the shares of Noreco responded with a rise of 20%.

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