Chinese oil majors are on a spree to acquire overseas assets. Keeping up with the trend, China Petroleum and Chemical Corporation (SNP), aka Sinopec, has now agreed to purchase a 49% stake in the North Sea assets of the Talisman Energy Inc. (TLM).
The agreement, valued at about $1.5 billion, includes the acquisition of almost half of Talisman Energy UK assets. The deal will create Talisman Energy UK, a joint venture (:JV) between Sinopec and Talisman. The JV intends to employ funds for the enhancement of ongoing operating activities in the North Sea region. Other activities to be undertaken to increase the life of the field and defer decommissioning include infill drilling, exploration prospects and other major developments.
The JV will bring forth additional resources and expertise for the development of the project. Jointly, the companies will be able to put in more investments in the U.K. than Talisman would have alone. Talisman will retain the operatorship of the assets while Sinopec will place some of its personnel at significant positions within the organization.
This contract has on the other hand enabled Talisman to fulfill two vital goals it had set for 2012. The purchase of stake by Sinopec proportionately reduces Talisman’s share of expenses in respect of capital outlay, production and abandonment liabilities for its UK business.
The sale proceeds raise Talisman’s divestment proceeds to around $2.5 billion till date, to be partly utilized for repurchasing shares.
The transaction is effective since January 1, 2012with the closure anticipated by the year end. The Northern Business Area and the Central Business Area are the two major operating regions of Talisman in the U.K.
Currently, Talisman has operated and non-operated interests in 46 fields in the North Sea region. It entered the region in 1994 and controls 11 offshore installations and an onshore terminal.
Sinopec holds a Zacks #4 Rank, which is equivalent to a Sell rating for a period of one to three months. Longer term, we maintain our Underperform recommendation.Read the Full Research Report on SNP
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