China's CITIC Group Pays $1.9 billion Nations Energy's Kazakh Oil

China International Trust and Investment Corp (CITIC) has agreed to pay 1.9 billion dollars for Canada-based Nations Energy's oil assets in Kazakhstan.  The deal represents an example of China's drive to secure global energy assets as it acquires power supplies for its fast-growing economy.

State-controlled CITIC has so far only had limited exposure to the oil business but the Kazakhstan foray could potentially prove a lucrative deal for the sprawling group.  "It's a business where there's money to be made, so if you can enter it, of course it's ideal for a company like CITIC," said Huang Meirong, a Shanghai-based analyst with Shenyin Wanguo Securities.

Nations Energy's Kazakh subsidiary, JSC Karazhanbasmunai, holds the rights until 2020 to develop the Karazhanbas Oil and Gas Field in Mangistau Oblast, Kazakhstan.  The field has proven reserves in excess of 340 million barrels of oil and current production of over 50,000 barrels per day.  "The proposed acquisition is an important element in the execution of CITIC's oil and gas strategy," Zhang Jijing, assistant president of CITIC Group, said in the statement.  "(It) is expected to provide CITIC with a proven base for its overseas energy business expansion strategy in one of Central Asia's most dynamic and successful oil producing countries," he said.

Zhang characterized Kazakhstan as "a stable country with a highly-rated and fast growing economy. This is an excellent platform for CITIC's further diversified investment and business cooperation in Kazakhstan."  Kazakhstan is of particular interest to Chinese companies as it borders the west of China and as such is a natural choice, especially after the construction of a cross-border pipeline.  The 620-mile pipeline links central Kazakhstan to western China's Xinjiang region and deliveries are expected to start in mid-2006, with an initial annual capacity of 10 million tones.

Energy security is becoming an urgent priority for China, already the world's second-largest consumer of oil after the United States.  China imported 95.8 million tones of crude oil in the first eight months of the year, up 15.3 percent from the same period last year.  "This deal could reflect the attitude of the government in terms of the need for a diversified strategy on securing oil reserves," said Shenyin Wanguo's Huang.  "Previously the government only allowed a small group of large oil companies to engage in this sort of transaction, but the fact that CITIC is now allowed to do it could be a signal that the policy is being relaxed," he said.