Cnooc Unit To Buy Awilco For $2.5 Billion

RDX: In late June, The Wall Street Journal reported that the two companies were in advanced talks over the acquisition. China Oilfield Services had planned to lead a consortium making the acquisition that included First Reserve Corp. and Goldman Sachs Group Inc.'s private-equity arm. But the two private-equity investors pulled out after participating in due diligence, according to people familiar with the situation.

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HONG KONG -- China's top offshore-oil firm is diving into the global oil-field-services industry by launching a $2.5 billion friendly takeover of a Norwegian rival.

The deal is a bold move by China to capture a larger share of the profits from the global boom in exploration as oil prices soar. China's double-digit growth and voracious appetite for natural resources to fuel expansion are key factors pushing oil prices higher and driving much of the demand to tap new reserves.

The tender offer by the oil-services arm of China National Offshore Oil Corp., known as Cnooc, for Norway's Awilco Offshore ASA will make the Chinese company owner of the world's eighth-largest rig fleet, with 34 rigs including those under construction.

Spurred by soaring crude prices, oil companies are pouring billions of dollars into exploration, venturing into increasingly remote environments such as the Arctic Ocean and the deep waters off West Africa and Brazil. That has created huge demand for rig operators, resulting in some drillers being able to lease out their most advanced equipment to oil companies at rates of $600,000 a day.

The move by the Cnooc arm, China Oilfield Services Ltd., also shows a shift in strategy toward overseas acquisitions following Cnooc's failed $18.5 billion cash bid in 2005 to acquire Unocal Corp. of California. Since that bid ran into stiff political opposition in the U.S., Chinese oil companies have shifted their attention to buying businesses and assets in Africa and central Asia rather than in Western countries.

Now, Cnooc is testing the waters in the West with a safer, more strategic approach. Rather than directly pursuing a deal to secure oil in the West, it is pursuing a friendly deal in an energy-related business involving the means to tap reserves. Cnooc has already secured the support of two big Awilco shareholders, which own 40% of the Norwegian company, and the recommendation of its board.

The approximately $2.5 billion offer, which includes the assumption of a further $1.3 billion in debt, represents a 19% premium to the price at which Awilco shares closed Friday on the Oslo Stock Exchange. The deal will be China's fourth-largest crossborder full takeover to date.

"This year has been a breakout year for Chinese outbound investment, and we expect that this trend will continue to be a major theme in the second half," says Brian Gu, head of the Greater China M&A practice at J.P. Morgan Chase & Co., one of China Oilfield Services' advisers on the acquisition.

In late June, The Wall Street Journal reported that the two companies were in advanced talks over the acquisition. China Oilfield Services had planned to lead a consortium making the acquisition that included First Reserve Corp. and Goldman Sachs Group Inc.'s private-equity arm. But the two private-equity investors pulled out after participating in due diligence, according to people familiar with the situation.