As oil supply begins to trend towards demand and prices push back above $55 (£44) a barrel, mid-tier oil companies may once more find themselves the subject of takeover bids. That's one conclusion from the reported takeover offers for two London-listed oil firms by Chinese entities earlier this month.
The first approach, reported by Bloomberg but confirmed by neither party, apparently involves a bid by Chinese state oil group Sinopec for Gulf Keystone Petroleum (GKP), the Aim-listed Kurdistan producer. Followers of Gulf Keystone should not be especially surprised. The company, which has had a tumultuous couple of years, recently completed a major restructuring that handed majority ownership of the company to its creditors. Against a firmer oil price, that group may see the logic in finding a buyer for a £300m company that will require continued investment in the coming year.
Meanwhile, fellow Aim traveller San Leon Energy (SLE) confirmed it had received a takeover approach, following a report in The Sunday Business Post that a Chinese investor is looking to buy the group. The shares leapt by as much as 25 per cent on the announcement, valuing the group at £229m, although San Leon cautioned that there can be no certainty that the talks would result in a firm offer. Last month, the company announced it would sell its two gas assets in Poland for a consideration worth €12.1m (£10.2m). Chief executive Oisin Fanning said the disposals would allow the company to focus on its stake in OML 18, the Nigerian field formerly operated by Royal Dutch Shell (RDSB) and for which the company attracted £170m in August's 45p-a-share placing.
Although regulatory concerns could weigh on deals, many analysts are expecting Chinese outward-bound M&A activity to be a dominant theme in the years ahead, as the People's Republic attempts to smooth its enormous economic shift to domestic consumption. Between 2005 and 2010, outbound investments into energy accounted for more than half of the international M&A led by Chinese companies.
There are other signs that this may be the start of a trend. On the same day that San Leon confirmed its potential takeover, Reuters reported that CEFC China Energy is in advanced talks with Abu Dhabi's state oil company to acquire a stake in the country's onshore petroleum operations. BP (BP.) has also signed a deal for a 10 per cent interest in the concession, in exchange for £1.8bn-worth of new shares. In a further sign that the oil major had been waiting for an Opec-led stabilisation in the oil price before sanctioning large capital-intensive projects, BP signed a deal for a 62 per cent interest in Kosmos' blocks in Mauritania and a 32.5 per cent working interest in its Senegal exploration block.
