On September 8, 2017, CEFC China Energy reached an agreement with a consortium of companies, comprised of Swiss company, Glencore and the Qatar Investment Authority, to acquire a 14.26 % stake in Russian oil major, Rosneft, in a deal valued at $9.1 billion. In July of this year, CEFC and Rosneft signed a cooperation agreement that called for the joint exploration, production, and refining of petrochemicals. The agreement involves the establishment of a vertically integrated joint investment fund to achieve these project outcomes and effectively paved the way for CEFC’s eventual equity stake in Rosneft.
Specifically, CEFC will buy shares of the Russian oil major at a 16% premium to the 30-day volume weighted average price of Rosneft shares. This lucrative offer was made less than one month after another series of U.S. congressional sanctions against Russian enterprises (including Rosneft) were implemented.
The terms of the acquisition remain opaque. Even China’s state-owned China Daily reported on the “lack of transparency” surrounding the deal. Beyond realizing commercial synergies, the opacity and accelerated nature of the deal is indicative of the political inclinations of Moscow and Beijing, as they seek closer ties amidst increasing Western scrutiny and pressure.
The deal marks one of the largest Chinese investments in a Russian state-owned entity, which will make CEFC Rosneft’s third largest shareholder. The contract is to be signed this week. The stake will provide CEFC an annual equity oil production of 42 million metric tons (approximately 84,000 barrels per day) and access to oil and gas reserves of 2.67 billion tons (20 billion barrels). Rosneft CEO and close ally of Vladmir Putin, Igor Sechin, indicated that CEFC will be granted complete access to Rosneft’s oil fields and petrochemical projects in East Siberia in an effort to “increase synergies” between the two companies. Although still subject to regulatory clearance, when realized, the deal will mark a significant strengthening of energy ties between Moscow and Beijing.
Other ongoing Chinese-Russian initiatives in this area this year, include:
- August 2017, China Investment Corporation expresses interest in purchasing shares of Russian energy transport monopoly, Transneft.
- June 2017, Beijing Petrochemical Engineering Company (a subsidiary of Yanchang Petroleum) signed a cooperation memorandum with Rostec to create a joint venture that would localize new LNG technologies in Russia.
- April 2017, China Petroleum Construction Corporation (CPECC) signed an EPC agreement with Gazprom to participate in the construction of Russia’s Amur gas processing plant – a joint venture project between state-owned companies Gazprom and China National Petroleum Corporation.
The graph to the right, excerpted from IntelTrak, shows the increase in Chinese investment in the Russian energy and petrochemical industries over the past six years.