China’s Sinopec paying $7 bln for Repsol Brazil stake

MADRID/BEIJING, (Reuters) – China’s Sinopec Group  said yesterday it plans to buy 40 percent of Repsol’s deepwater  oil assets in Brazil for $7.1 billion as the Asian giant  expands its presence in resource-rich Latin America.

China has invested heavily in natural resource projects  overseas to feed its surging domestic economy and is now on  track to be the biggest foreign direct investor in Brazil for  2010 — underscoring the trend of growing investment flows  between big emerging economies that are now less reliant on  traditional partners like the United States.

Sinopec announced the multibillion-dollar agreement just  two days before Brazilians go to the polls to elect a new  president. Dilma Rousseff, the handpicked successor of outgoing  President Luiz Inacio Lula da Silva, is widely forecast to win  the election.

The deal would help Repsol Brasil, a unit of Spain’s  largest oil company, develop costly subsalt deposits that were  discovered in 2007 and comprise one of the world’s biggest  petroleum frontiers. Experts believe the vast subsalt area may  hold 50 billion barrels of crude.

“Oil demand should grow, with the global economy recovering  in the coming years,” said Erick Scott, an analyst at Sao  Paulo-based brokerage SLW. “Brazil is one of the countries with  the most potential for growth because of the subsalt reserves,  so that’s why they’re coming here.”  Sinopec is also bidding for oil and gas assets of Brazilian  startup firm OGX worth a potential $7 billion, sources told  Reuters last month.

A source at OGX, controlled by billionaire Eike Batista,  told Reuters on Friday the deal with Repsol has no effect on  negotiations with potential buyers for assets in the Campos  basin, where most of Brazil’s oil output comes from.

“One thing has nothing to do with the other. We should have  something on that soon,” the source said.

Repsol Brasil had filed to sell shares in an initial public  offering in Sao Paulo, but with the Sinopec deal, the IPO has  been canceled, said Miguel Martinez, chief operating officer of  Repsol.

With stakes in 16 offshore exploratory blocks, the company  has had seven discoveries so far, all of them in the Santos  basin off the coast of Sao Paulo. Repsol Brasil’s stakes give  the company control over reserves of 1.16 billion barrels of  oil equivalent (BOE) from the discoveries, according to an IPO  prospectus.

More broadly, mergers and acquisitions in Brazil’s oil  sector could flourish in coming months as global oil companies  look to get a piece of the deepwater reserves.

Licensing rounds to explore oil in the country have been  suspended since 2007 and with voting on Brazil’s new oil law on  hold for now, the only way for companies to get in on the  subsalt wells appears to be through mergers and acquisitions.