Texas oil fields owned by two private equity-backed energy producers will end up in the hands of a Chinese conglomerate through a complicated series of transactions.
U.S. energy companies are shedding assets amid depressed energy prices, and Chinese companies may be willing buyers as they seek new energy resources. But the deal for oil fields in the Permian Basin owned by Tall City Exploration LLC and Plymouth Petroleum LLC, announced in October, stands out for its multistep structure even among cross-border transactions, which are often complex.
Yantai Xinchao Industry Co. will buy the fields through several steps. First, Yantai agreed to acquire another Chinese company, Ningbo Dingliang Huitong Equity Investment Center, in a deal valued at 8.3 billion yuan (about $1.31 billion).
That deal, however, depends on Ningbo buying the Texas fields, according to an Oct. 24 filing by Yantai with the Shanghai Stock Exchange, where Yantai’s stock is listed. Ningbo will make the acquisition through its U.S. subsidiary Moss Creek Resources LLC. After Ningbo closes the oil-field deal, Ningbo’s owners-including four Chinese companies and three Chinese individuals-will sell their equity interest in Ningbo to “unrelated third parties,” according to the regulatory filing. The identity of the third parties couldn’t be learned.
China to expand influence in oil, gas
Since 2009, China has been taking a much more active role in its pursuit of international oil contracts. In 2009, for the first time, Saudi Arabia exported more of its oil to China than it did to the U.S. China also made large investments in Saudi Arabia’s oil refining industry as well. But China’s oil investments didn’t stop there; they also pursued oil producing Canadian assets in 2011-12.
When it comes to Chinese energy industry, there are three major state owned companies. One is called China National Offshore Oil Company (CNOOC), which is an oil and gas producer, another is called PetroChina, which is another oil producing company, and its third company is Sinopec, which is primarily a refining company.
Lately though, China’s large investments are being made in the mid-stream sector of the oil and gas industry, the one sector China doesn’t have a national company for. This is the part of the industry that transports oil and gas from producing wells to the refineries, so oil can be turned into liquid fuel.