Surprise Chinese Bid Raises Slavneft Stakes

China's largest oil company CNPC told Moscow it wants to make an offer to buy state oil firm Slavneft, setting the scene for what could be a dramatic bidding war for the Russian company.

"It was a big surprise for everybody, but I can confirm that CNPC has asked the Anti-Monopoly Ministry to give it permission to bid for Slavneft," an industry source said.

Analysts said the move, which came just hours after President Vladimir Putin visited Beijing, could push the cost of winning the stake to $3 billion and give Russian oil majors a run for their money.

The government has set a minimum bid of $1.7 billion.

Analysts, who had earlier seen No. 5 oil producer Sibneft as the front-runner, said CNPC's involvement could be the first participation by an emerging oil major in Russia's oil privatization.

Slavneft has so far only attracted interest from domestic oil companies, which will battle to grab one of the country's last state-owned oil assets at an auction Dec. 18. Permission for the bid, usually seen as a formality, is the last step before bidding for state assets through the State Property Fund.

Major private companies such as LUKoil, Sibneft, Surgutneftegaz and TNK are known to be keenly interested in Slavneft, but none can match the financial muscle of the cash-rich CNPC.

Analysts said one or more of the Russian firms may seek an alliance with CNPC or team up with each other to outbid the Chinese company.

"The possible arrival of CNPC to the auction scene is bad news for Russian majors, as the former is simply in a different league. CNPC clearly possesses much greater firepower than its Russian counterparts and thus represents formidable competition," the Aton brokerage said.

CNPC is China's largest vertically integrated oil and gas company, and it operates in China, Kazakhstan, Iraq, Sudan and Venezuela.

Petrochina, CNPC's main publicly traded arm, has a market capitalization of more than $34 billion, output of 2.45 million barrels per day and proven reserves of around 15 billion barrels.

Aton focused on Petrochina's earnings before interest, tax, depreciation and amortization, or EBITDA.

"Petrochina's 2002 estimated EBITDA of $13 billion is greater than the combined EBITDA of the top three Russian majors -- LUKoil, Yukos and Surgutneftegaz," Aton said.

"The Chinese can pay at least double our oil companies, simply because they have different assessment criteria," Aton analyst Stephen Dashevsky said. "The replacement cost of CNPC oil is $2.50 a barrel, while for Russian companies it is $1 per barrel."

Dashevsky said that in November the Chinese Trade and Economic Cooperation Ministry recommended that Chinese companies purchase the shares of publicly traded oil holding companies in Russia and Central Asia.

"China's oil needs continue to grow rapidly, outstripping its own reserves. This is why Chinese companies are trying to diversify the regions in which they operate," Dashevsky said.

United Financial Group said the reason behind CNPC's interest in Russian assets was that China's domestic crude oil consumption was growing more rapidly than its oil reserve base.

Troika Dialog analyst Valery Nesterov said that CNPC could purchase the Slavneft stake with an eye to the future oil pipeline from Russia to China, which the Chinese company plans to build together with Yukos.

(Reuters, Vedomosti, MT)