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NEWS UPDATES 23 May 2009

Taiwan’s state refiner to buy Cambodia oil stake from China

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CPC Corp, Taiwan’s state-owned refiner, is in talks to buy a stake in a Cambodian oil area from China and plans to “aggressively” bid for energy assets with mainland partners, Bloomberg News quoted company President Chu Shao-hua as saying.

The purchase is being negotiated with China National Offshore Oil Corp, the country’s third-biggest oil producer, from whom CPC bought a 30 percent share in a Kenyan block in December, spokeswoman Jessica Tang said. The company also plans to process more crude for China National Petroleum Corp, the parent of PetroChina Co, Chu said in an interview in Taipei.

CPC will ramp up exploration spending by 77 percent this year as part of efforts to secure supplies and meet a tenth of its petroleum needs by 2014. Warming political ties are encouraging companies in China and Taiwan to cooperate. China Mobile Ltd agreed to buy a stake in Far EasTone Telecommunications Co in April, the first planned investment by a state-owned mainland company in Taiwan in six decades.

China National Offshore “has a very good track record in exploration and production,” said Charles Chen, who helps manage the equivalent of $3.7 billion at JF Asset Management Co in Taipei. “Its cooperation with CPC may help Taiwan gain oil resources in the future.”

Unlisted CPC competes with Formosa Petrochemical Corp., the island’s only publicly traded oil refiner, to sell fuels in Taiwan and in Asian markets, including China. The island imports about 99 percent of its energy needs.

The company may spend NT$4.6 billion ($141 million) on exploration and production this year, Chu, 61, said at CPC’s headquarters yesterday. It spent NT$2.6 billion in 2008. Current production meets 7 percent of its gas requirement and about 2.5 percent of its crude-oil needs, Chu said.

“Possible stake purchases in existing fields is an approach we’re aggressively pursuing,” Chu said. “Chinese companies are easier to communicate with than foreign ones.”

CPC and China National Offshore started a joint study in 1998 on possible cooperation in search for oil and gas in a block in the Taiwan Strait. The purchase of the block in Kenya paved the way for joint overseas exploration and the two companies renewed a 2002 agreement last year to jointly drill wells in the southern part of the Strait.

CPC may invite Chinese companies to jointly search for oil and gas in waters near the island to share costs, John Hsu, chief executive of the company’s exploration and production division, said in March.

How much CPC could gain from cooperation in the near term is difficult to assess as very little information is available on the likely reserves and because exploration “requires large investments,” said Chen at JF Asset Management.

“Benefits for CPC may be limited for now, but you got to work together first and see what chances there may be in the future,” Chen said. Still, China National Offshore, “is a worthy partner.”

Relations between China and Taiwan have improved since the Kuomintang party’s Ma Ying-jeou took office in May last year as the island’s president and dropped the pro-independence stance of his predecessor, Chen Shui-bian. Ma said this week he will prioritize economic ties with China.

While China says Taiwan is part of its territory, the two have been administered separately since Chiang Kai-shek’s Nationalists fled the mainland in 1949 after losing to Mao Zedong’s Communists in a civil war.

Formerly known as Chinese Petroleum Corp, CPC was formed by the Nationalists government in Shanghai in 1946 and relocated to Taiwan after Kuomintang’s defeat.

The refiner may process as many as 3 million barrels of Sudanese oil for China National Petroleum in exchange for fees and parts of the refined products, President Chu said. This would help CPC better utilize its spare capacity as Taiwan’s fuel demand falls amid the recession, he said.

CPC first refined crude for the Chinese company in 2002 and processed another cargo last year, he said.

CPC operates three refineries with a total daily capacity of 720,000 barrels of crude and has investments in Africa, Southeast Asia, the U.S., Australia and Latin America.


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