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HONG KONG (Dow Jones)--China Petrochemical Corp., or Sinopec Group, plans to team up with domestic rival China National Petroleum Corp., or CNPC, to acquire drilling rights to an oilfield in Sudan for about US$600 million, a person close to the deal said Tuesday.
It would be the second time since September this year that the two unlisted Chinese oil giants have joined forces to secure overseas oil supplies to help them meet strong domestic demand amid China's rapid economic development.
Sinopec Group and CNPC are expected to sign a deal by the end of this year, said the person who requested anonymity.
The Sudan government is looking to keep a stake in the oilfield venture, which is expected to produce more than 20,000 barrels of crude oil per day in the initial stage of development, the person said.
"To Sinopec Group, it is not a huge deal, but it is just the beginning," the person said.
"Sinopec Group needs CNPC in the sense that it (CNPC) has more experience in overseas acquisitions...Sinopec has to catch up with others in acquiring overseas upstream assets."
As China imports about 40% of its oil needs, high international oil prices have prompted the country's cash-rich oil giants to hunt for upstream assets to control their costs, analysts said. Setting up joint ventures can improve their chances of securing such assets, especially when they are in competition with equally energy-hungry India.
As of March, Sudan had proven reserves of 563 million barrels of oil, more than twice the 262 million barrels estimated in 2001, according to the Web site of the Energy Information Administration of the U.S. government.
Sudan's oil production is expected to rise to 500,000 barrels a day by the end of 2005, the country's energy minister, Awad Ahmed al-Jaz, said in August, when the country's daily oil production was 350,000 barrels.
Sinopec Group and CNPC previously teamed up mid-September to buy Calgary-based Encana Corp.'s oil and pipeline interests in Ecuador for US$1.42 billion.
In early September, CNPC and China National Offshore Corp., the unlisted parent of CNOOC Ltd. (CEO), also formed their first overseas tie-up to explore for oil and gas offshore Kazakhstan.
Additionally, Chinese oil companies have pursued deals solo, but with mixed results.
CNPC unit CNPC International reached an agreement in August to buy PetroKazakhstan Inc. (PKZ) for US$4.2 billion.
But CNOOC Ltd. dropped its attempt to buy U.S. energy firm Unocal Corp. for US$18.5 billion in August because of fierce opposition in Washington.
Sinopec Group is the unlisted parent of China Petroleum & Chemical Corp. (SNP), better known as Sinopec, Asia's largest refiner by capacity.
CNPC is the unlisted parent of China's largest integrated oil producer, PetroChina Co. (PTR). It already has oil assets in Sudan, including oilfields, oil pipelines and refineries.
Officials of both companies couldn't be immediately reached for comment.
Sinopec Group previously held an 80% stake in a small exploration block in Sudan, but sold it to CNPC in June 2000, as human rights groups in the U.S. protested against the company having business interests in the African country.
However, CNPC, whose PetroChina unit also listed in 2000, didn't pull out of Sudan despite the protests of human rights groups, who claimed Sudan's Islamist government was using oil revenues to fund its war against rebels in the mainly Christian and animist south.
After decades of ethnic clashes, conflict in Sudan erupted on a wider scale in February 2003 and the United Nations estimates that civil war, famine and disease have claimed the lives of more than 180,000 since then, while several million more people have either fled or been displaced inside the country.
Referring to the business risks China's oil companies face from investing in Sudan, an energy analyst at a Japanese bank, who declined to be named, said: "As long as the deal is done through the unlisted parent company, their listed units should not be affected."