Kazakhstan excludes refinery from deal with China

by Kulpash Konyrova in Astana

In the purchase by Kazakh national company KazMunaiGaz (KMG) and China National Petroleum Corporation (CNPC) of 100 % stock of the largest private oil producing company MangistauMunaiGaz's (MMG) its most desired asset -- the Pavlodar Petrochemical Plant (PPP or the Pavlodar refinery) -- has remained untouched.
KazMunaiGaz and CNPC Exploration and Development Company (CNPC E&D) have signed an agreement to purchase 100 % of MangistauMunaiGaz's common stock from Central Asia Petroleum (CAP). However, the report is silent on the value of the future acquisition of Kazakhstan's largest private-owned oil producer (the recoverable oil reserves of its fields are over 180 mm tons.)

Some time ago, some Kazakh and international media reported that CNPC loaned $ 5 bn to KMG to be partly used to finance the joint purchase of MangistauMunaiGaz's.
"The $ 5 bn provide for financing of the purchase of MangistauMunaiGaz's and of the pipeline project Beineu-Bozoi-Akbulak-Shymkent," KMG President Kairgeldy Abdildin told without, however, providing the break down of the costs. Later, a report said with reference to the CNPC Chairman Jiang Jiemin, that the MMG stock was evaluated at $ 1.4 bn.

KMG has said that the "the deal is expected to be closed before the end of July 2009 after all the necessary regulatory approvals have been received. And only after that the amount of the transaction will be announced." However, a source from the oil and gas circles has told that the MMG owners had originally asked for $ 4 bn for the company's assets. According to the source, the $ 1.4 bn price of the deal announced by the CNPC Chairman is most likely connected with the falling prices for oil. He believes that the Chinese got simply lucky.
"What is most important is that in the world practice, the value of assets is always based on the explored oil reserves multiplied by the price per barrel at the time of transaction. Today, as is known, the price for oil has fallen since the beginning of the negotiations with the Chinese," the oilman explained.

Another important detail noted by KMG of the Kazakhstan national company is that the MangistauMunaiGaz's assets acquired by KMG and CNPC include the fields Kalamkas, Zhetybai, and the rest of the geological exploration assets of MMG.
"The MMG-owned Pavlodar refinery's stock and assets were excluded from the deal," it reported.
MMG is among the five largest oil producers of Kazakhstan. It owns 36 oil and gas fields, 15 out of which are in development. In addition, MMG also owned the Pavlodar refinery and the most extensive network of gas stations all over Kazakhstan through it subsidiary, Helios.

As an informed source close to the deal told, "While KMG was busy discussing all the scenarios of acquisition with the potential partners, the current owners of MMG undertook a bold manoeuvre." He said, "They simply removed PPP from the MMG assets as a separate lot, having preliminarily estimated it at $ 600 to $ 700 mm. Thus, neither the Chinese, nor KMG could get the plant. Possibly, this is the reason for a lower that originally declared price."
However, the source believes that the deal is beneficial for both KMG and CNPC in any event, as both national companies have increased their resource bases.

CNPC Exploration and Development Company Ltd. (CNPC E&D) is a 50:50 joint venture between China National Oil & Gas Exploration Development Corporation PetroChina, both subsidiaries of CNPC.
Central Asia Petroleum is a British Virgin Islands-registered company holding 100 % of MangistauMunaiGaz's voting shares. MangistauMunaiGaz's (MMG) is a largest oil producer in Kazakhstan. It owns 36 oil and gas fields, 15 out of which are in development. The largest oil fields are Kalamkas and Zhetybai.