Sinopec to buy Chevron assets

• Chinese petroleum and oil company to pay $900m for 75% of South African assets

Hong Kong-listed China Petroleum & Chemical — a subsidiary of Chinese state-owned oil, gas and petrochemical producer Sinopec Group, has agreed to pay $900m for 75% of Chevron’s South African assets, it said on Wednesday.

Hong Kong-listed China Petroleum & Chemical Corporation (Sinopec Corp), a subsidiary of Chinese state-owned oil, gas and petrochemical producer Sinopec Group, has agreed to pay $900m (R11.3bn) for 75% of Chevron’s South African assets, the company said on Wednesday.

This is Sinopec’s first investment in an oil refinery in Africa although it has been active on the continent for more than 20 years, mainly in oil and gas exploration. In 2012 it partnered with PetroSA on a feasibility study for the proposed refinery at Coega, called Project Mthombo, which was never built.

In the nine months to September, Sinopec Corp produced 322.29-million barrels of oil equivalent (boe) of oil and gas and refined 175.25-million tonnes of product. It had 30,721 Sinopec-branded service stations, mostly company operated. Total revenue was 1.36-trillion remnimbi (R2.5-trillion).

Chevron sought a buyer for its local operations for more than a year as part of a global sale of about $15bn of assets. But the sticking point for bidders — rumoured to include Sasol, the Central Energy Fund, Total, Glencore, Gunvor, Vitol and Puma — was said to be the need to upgrade Chevron’s Cape Town refinery.

Like others in SA, this refinery can only produce fuel to meet the Euro 2 emissions standard. The latest vehicle models are designed to take Euro 5 or Euro 6 fuels.

The fact that Sinopec has made this initial investment could mean a breakthrough is imminent on the deadlock between the government and South African refineries, which have been reluctant to invest billions of rands in upgrades without a cost recovery mechanism.

Sinopec did not respond to a question on its plans for investment in the Cape Town refinery, but it said in a statement that it “intends to enable technological improvements and upgrades for all of the acquired assets to help meet increasing local demand for quality products as well as contribute to the development of the indigenous oil industry”.

Sinopec said it had proven capability to deliver complex projects with capacity of more than 10-million tonnes of refined products and was “renowned for its proprietary refining technology and expertise”.

Chevron said it selected Sinopec as the preferred bidder because it offered better terms and conditions than others, pledged to maintain the South African and Botswana businesses as going concerns and had a reputation as a leading energy company with a growing international footprint.

Apart from the refinery, Sinopec Corp is buying a lubricants plant in Durban, 820 service stations and 220 forecourt convenience stores in SA and Botswana and storage facilities. It will hold 75% of the South African assets and 100% of the Botswana assets, subject to regulatory approval of the deal.

The other 25% of Chevron’s South African assets are owned by a consortium including the South African National Taxi Council, African Legend, Lithemba and Ditikeni and by an employee trust.

Sinopec said it would not shed jobs and there would be no supply interruptions. It would retain the Caltex logo for five or six years before rebranding.

It said SA’s demand for refined petroleum was growing as its middle class expanded. In the past five years demand had grown at almost 5% a year to about 27-million tonnes.

Sinopec’s shares were trading 0.16% weaker in Hong Kong on Wednesday at HK$6.10. while Brent crude oil was holding just above $50/barrel.