- The Washington Times - Wednesday, October 26, 2005

ALMATY, Kazakhstan — China’s biggest foreign energy takeover ever took a giant step forward yesterday as a Canadian judge approved a $4.18 billion bid for control of Petrokazakhstan’s oil fields, following a bidding war with Russian oil giant Lukoil.

After failing to secure a slice of Kashagan, Kazakhstan’s massive offshore field, and rebuffed by congressional opposition in its bid to buy the U.S.-based Unocal earlier this year, the state-owned China National Petroleum Corp. (CNPC) finally got approval to buy Calgary-based Petrokazakhstan, despite Lukoil’s rival offer.

But how much oil Beijing will actually get to feed its soaring energy needs is still uncertain, say oilmen here.

The partially state-owned Lukoil and Kazakhstan’s own fledgling national oil company, KazMunaiGaz, are both bidding for other pieces of Petrokazakhstan, the former Soviet Union’s biggest independent oil company.

KazMunaiGaz, which controls the country’s pipeline network, produces slightly more than Petrokazakhstan — about a sixth of Kazakhstan’s total output of 1.2 million barrels a day. It is also the industry’s regulator, giving it what many here believe is the upper hand in the bidding.

CNPC desperately needs Petrokazakhstan’s oil to fill a pipeline it is building in partnership with KazMunaiGaz to take Caspian oil eastward to the Chinese border.

The pipeline is being built despite concerns in the U.S. government, which prefers that Kazakhstan send its oil westward to the Mediterranean where it can feed world markets.

But China’s supply hopes could be threatened if Lukoil succeeds in acquiring parts of Petrokazakhstan’s assets and if KazMunaiGaz diverts some reserves to domestic markets, according to oil industry executives who spoke on the condition of anonymity because of the sensitivity of the situation.

Julia Nanay, a Caspian analyst with Washington-based PFC Energy, said she expected that the Chinese pipeline, due to be finished next year, would eventually operate at full capacity.

“It’s in the interest of Kazakhs, too, since they own half of it,” she said.

Kairat Kelimbetov, Kazakh economy minister, said during a Washington visit yesterday there was intense competition for Kazakhstan’s oil reserves, with U.S., British, Russian, Chinese and Indian companies all in the market.

He said the government was open to all investors, including the Chinese, but “the country should always know the conditions under which these deals are made.”

Analysts say the Chinese paid top dollar for the Kazakh oil-field rights, part of Beijing’s aggressive strategy to lock in foreign energy sources to feed its booming economy.

The Petrokazakhstan purchase was followed in short order with Lukoil’s surprise $2 billion buyout of Nelson Resources — half the price of Petrokazakhstan, even though the Kazakh firm now produces less than a quarter of its rival’s output.

Both purchases were made by state-controlled companies, whose priorities are to secure energy supplies rather than to turn a profit, analysts noted.

c David R. Sands in Washington contributed to this report.

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