Financial Times: BP seeks strategic China link: “No foreign oil group has been granted significant access to the domestic oil industry, especially in the upstream sector, in spite of several attempts by BP, Exxon and Shell.”: Thursday 13 October 2005
By Carola Hoyos in London, Francesco Guerrera in Hong Kong and,Richard McGregor in Beijing
Published: October 13 2005
* Deal would rival scope of partnership with TNK of Russia
* Tie-up would help close Sinopec's gap in exploration
BP is pursuing a partnership with Sinopec, China's biggest producer and marketer of refined oil products. The deal would give the UK oil major a foothold in an economy that is one of the heaviest fuel consumers.
Sinopec and BP have been holding extensive top-level talks for some time. A BP executive said: "[Lord] Browne [BP's chief executive] has big ambitions for China. China needs the feedstock, BP has got it and BP wants access to the market."
The deal with the foreign-listed arm of China Petroleum Chemical Corporation would be as ambitious in scope as BP's historic partnership with TNK, which in 2003 created Russia's second-biggest oil company, according to several sources including bankers, diplomats and oil executives in China, the UK and the US.
While BP has made no official comment on the possible deal, a company official said: "As with all joint ventures, we have constant dialogue about ongoing business and potential future developments. We do not comment on specific discussions."
BP's $14bn (£8bn) TNK partnership, the biggest foreign investment of its kind in Russia, eventually added 1.7m barrels a day to BP's total output. The deal, which was criticised as risky at the time, gave BP a substantial presence in Russia. Its peers have been unable to follow as Vladimir Putin, Russia's president, later barred such deals.
In any deal with Sinopec - listed in Hong Kong with a market capitalisation of HK$330bn (£24.4bn) - the prize for BP is access to refining and marketing in the fastest-growing user of energy among large economies.
For the Chinese group - still largely state controlled - a link with BP could help plug a gap in its upstream exploration activities, where it trails domestic rivals PetroChina and CNOOC.
However, any deal could be complicated, or even scuppered, by Beijing's desire to keep the strategically important oil industry under domestic control. Any deal is certain to receive thorough scrutiny from the highest authorities and would need final approval from the State Council, China's powerful cabinet.
Talks between Lord Browne and top Chinese officials have already begun, according to people on both sides. One person said Lord Browne met Hu Jintao, China's president, on the sidelines of the United Nations General Assembly meeting in New York last month. Mr Hu raised several concerns, the source said.
Lord Browne will again meet high-level officials in Beijing this month, a second person close to BP said. BP has not confirmed either meeting.
Chinese authorities have expressed concerns that industrialisation is putting a strain on its energy reserves, with power shortages in some areas.
Their response has been to urge the three state-controlled oil majors to acquire assets and companies abroad, as shown by this year's failed $18.5bn bid by CNOOC for the US group Unocal.
No foreign oil group has been granted significant access to the domestic oil industry, especially in the upstream sector, in spite of several attempts by BP, Exxon and Shell.
Industry insiders say Beijing is likely to be reluctant to sanction a wholesale opening of the domestic market to foreigners but it might allow a test case to see whether foreign input can help alleviate the problems.
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