Chinese Oil Firms Bid for Repsol's Argentine unit

Chinese oil conglomerates China National Petroleum and Cnooc have offered to pay an estimated $17 billion usd for all of Repsol YPF's state in its Argentine unit called YPF.

You can read the Wall Street Journal's paraphrased article (the original costs money) at thestreet.com, by visiting this article.

Will this deal actually be completed? China South America reported on this possible deal back on July 7, 2009. You will notice, the offer at this point was only $14.5 billion for a 75% stake. China has since upped the offer and is now looking to buy the entire thing.

Why China? Are you angry over Australia rejecting your Rio bid? Are you feeling flustered that countries from the industrialized world, but also in Africa and Latin America are starting to think twice about selling the rights to their raw materials?

I don't blame them, after all, Australia is quite similar to South American commodity producing countries. Two note worthy and simple similarities include

1. A large portion of GDP is generated from commodity exports
2. The relative strength or weakness of domestic currencies such as the Ausie Dollar, Argentine Peso, Peruvian Sol and Brazilian Real, are all inherently linked to the global market price of the commodities the countries export. [ie: if the spot price for copper drops 50%, observe what happens to Peru and Chile's Peso's.
   

According to the WSJ article, the main obstacles to this deal include

• Spain is hesitant to see some of its best assets in Argentina be sold to China

• Argentina's government has no financial stake in YPF, but nonetheless under Argentine law has the right to veto decisions such as transfer of ownership. In my personal opinion, this translates into who is willing to pay more “under the table” to the Argentine government.

• China National Petroleum and Cnooc are state owned organizations. Despite their growing influence and presence in oil markets around the world, many governments still remain weary of doing business with companies officially tied to a foreign government.

China to buy Repsol Assets in Argentina - Update

[China - Argentina - Spain]

China's CNPC said offering $14.5 billion for Repsol investment - Market Watch

SAN FRANCISCO (MarketWatch) -- China National Petroleum Corp. has offered up to $14.5 billion for a majority stake in the Argentine unit of Spanish oil company Repsol YPF SA, according to media reports published on Tuesday.

The South China Morning Post, citing unnamed sources, reported that CNPC has offered between $13.2 billion and $14.5 billion for a 75% stake in the unit.

Dow Jones Newswires reported that Repsol said last week that it had received proposals from a number of companies for a stake in the unit.

China has been acquiring energy assets as its growing economy demands more resources to support its needs.

Sinopec has also secured a deal with Brazilian firm Petrobras (PEFGF) to supply it with 150,000 barrels of crude a day this year, and 200,000 barrels per day for nine years starting in 2010, according to the state-run China Daily.

Argentina and Spanish oil giant Repsol still thinking...

[China - Argentina - Spain]


Pretty good Wall Street Journal articles hit the presses in NYC today relating to the topic of Repsol selling their assets in Argentina to China

CNOOC Says Interested In Cooperation, Not Takeovers - EFE

Argentina Still Weighs on Repsol

Repsol is playing down speculation about unloading some of its 85% stake in Argentinian oil business YPF. But shareholders must hope a deal materializes, and soon. Apart from its exposure to Argentina's political and economic risks, YPF ties up capital that Repsol could use to develop large recent Brazilian oil discoveries.

Unfortunately, what makes it wise for Repsol to sell YPF may deter potential buyers. YPF's reserves are declining. Buenos Aires has to approve any share sale, while Repsol has committed to keep at least a 50.1% stake until 2012.

YPF also has to satisfy domestic oil demand -- where prices are capped -- before it can export, paying a punitive export tax. Chinese suitors, in particular, will likely bridle at such restrictions.

Click here, or the links above to view the complete articles from the WSJ

Commodities in focus: Investment, Production Forecasts, New Discoveries and Project Cancellations from South America

The commodity market is having a mid-recession crisis. This is especially troubling for the major commodity producers in South America. Forecasts of when the global economy will recover from the current financial crisis to range from the 2nd half of 2009 into 2010.


Investing your rainy-day fund from the “boom years” and what it means for Chile

For a country like Chile, which has roughly $22 billion of saved reserves from the four-year boom in copper prices (Chile is the world's #1 producer of copper), recession is going to mean tapping into those savings in order to invigorate demand.

Chile has earned a reputation for being a very efficiently managed economy in South America. This, combined with the fact the country has saved for bad times has created a sense that the Chile is in the best position to weather the global recession.

Fund managers and analysts at Scotiabank Sud Americano SA and Santander are of this opinion and emphasize that so far, Chile's Ipsa Index is the best preforming Latin American benchmark, with a gain so far in 2009 of 5.1%.

(click here to read more on this topic from James Attwood's article on Bloomberg)



New Investments & South-South Cooperation: Brazil-Bolivia

In other commodity news, there is a new example of growing South-South Cooperation to report, this time between Brazil and Bolivia. Brazilian oil conglomerate Petrobras has announced plans to invest $1.1 billion in natural gas projects in Bolivia.

Brazil’s state oil company “has made the commitment to invest $1.1 billion in the coming years,” Lula said at a press conference late yesterday in the Brazilian town of Ladario, which borders Bolivia. “We need gas and we will act with the Bolivian government to fulfill that need.”

(click here to access the full article from Bloomberg)

Bolivia is proven to have the second-largest natural gas reserves in South America after Venezuela. Much like Venezuela, foreign investors are quite concerned with the political situation and as a result the flows of FDI in Bolivia have taken a serious hit in recent years.

However, with energy demand holding steady in Brazil and Argentina, Bolivia's current inability to meet supply contracts with the two nations, this is a smart and strategic move on Brazil's part. Furthermore, with ongoing issues concerning the the price Brazil pays for electric power generated by the Itaipu dam (the world's largest hydroelectric plant, located on the Parana River along the Brazil-Paraguay boarder), it is wise of Brazil to secure its energy needs from a additional source in the region.

(click here to access a recent article concerning this issue between Brazil and Paraguay, courtesy of La Presna Latina)


Exploration / New discovery in Brazil

Moving on... discoveries / exploration continue. Spanish company, Repsol has made a oil discovery offshore Brazil. Repsol announced this weekend, it had found “traces” of hydrocarbons at a deep water well being drilled off the Brazilian coast.

Exploration work was headed by a consortium of companies of which Repsol has the largest stake in. Brazil's Petrobras and Australia's Woodside Petroleum Limited are the other two partners.

It's good news to see companies continuing with resource exploration. When the global economy recovers, which it eventually will—commodities will be back in the headlines. The companies which have managed to brave the recession will find themselves rewarded as consumption increases and buyers line up, ready and willing to pay a premium.

(Click here to read more on this discovery from MercoPress)


Production in 2009 – Copper & gold production set to rise in Peru

Peruvian news agency, Andina has reported Peru's mining companies will produce more copper, gold and silver this year in a bid to offset slumping prices, according to Finance Minister Luis Valdivieso.

In the world, Peru ranks as the third-largest producer of copper, zinc and tin. The fifth largest producer of gold, and the number one producer of Silver. None the less, Peru is confident that by raising output it will be able to cope with the global downturn.

However, if the global economy does not recover as quickly, Peru may find increasing output was not the best method to deal with the situation in the long term. If other producers in the world economy do the same, the market will hypothetically be flooded with supply.

With base metal prices down roughly 25-40%, gold and silver down 14% and 43% respectively, this does seem the most logical path for Peru to take at the moment. The ideal situation I assume the big shots making decisions down in Peru can hope is that the global economy does pick up in the 2nd half of 2009, so that prices do not fall to levels in which mining production becomes economically inviable.

(click here to access Andina's article on this topic)


Baosteel and Vale cancel steel project due to lack of credit – BNAmericas

Cia Vale do Rio Doce and Baosteel have canceled their steel project in the Anchieta complex, in the Espirito Santo state of Brazil, the groups announced.

The companies blamed the global economic crisis, which has seen leading steelmakers worldwide cutting their steel production. As result of the global cut in demand, Baosteel proposed the cancellation of the project and the liquidation of Companhia Siderúrgica Vitória (CSV).

(click here to access the full article from BNAmericas)