Sinopec is buying 40% of the Brazilian subsidiary of Spanish oil company Repsol for $7.1 billion, a deal that provides Repsol with funding to develop its vast offshore Brazilian fields and Sinopec, China’s largest oil refiner, with more guaranteed access to crude supplies via what is one of Latin America’s largest foreign-controlled energy companies. (Repsol’s announcement.)
This is Sinopec’s second large deal. It bought Swiss-based Addax Petroleum for $7.2 billion last year, the most expensive oil company acquisition by a Chinese firm to date. This latest deal takes the total foreign investment spending by China’s three big state-owned oil companies to some $36 billion since the beginning of last year — and that excludes $77 billion-worth of long-term oil-for-loans deals struck with a number of countries such as Russia (and including Brazil) and $18 billion in committed investment in Iraq and Iran’s oil fields.
As those numbers suggest, taking equity stakes in an operating company is a growing part of the strategy for the Chinese oil majors to secure oil supplies, as opposed to cutting long-term supply deals, as Sinopec has previously done with the Brazilian state oil company, Petrobras, or buying stakes in oil fields, again has Chinese oil companies have been doing in the waters on both the Latin American and African sides of the South Atlantic.
Brazil’s offshore fields are particularly challenging to exploit. They lie not only in deep water but also below a thick layer of salt (see diagram, left; the units are in meters; it is a snapshot from a fuller explanation by Repsol here). Deals like Sinopec’s with Repsol offer the opportunity for China’s oil companies to get that sort of technical operating experience. As China continues to scour the world to secure the energy supplies it will need to fuel its development, its oil companies are only going to have to look in places where the crude is ever more difficult to extract.