Zacks_Analysts' Blog : Sinopec Buys Argentine Assets - Analyst Blog

China Petrochemical Corp., Asia’s largest refiner and parent of Sinopec (SNP), signed an agreement to acquire Occidental Petroleum Corp.'s (OXY) oil and gas assets in Argentina for $2.45 billion.

Occidental's Argentine assets include interests in 23 production and exploration fields in Santa Cruz, Mendozaand Chubut provinces. Gross production from these fields was approximately 51,000 barrels of oil equivalent per day last year and proven and probable reserves were 393 million barrels.

The deal marks Sinopec’s first investment in Argentina and follows the $7.06 billion stake purchase in that country’s Pan American Energy LLC last month through a venture partly owned by CNOOC Ltd. (CEO).

Chinese oil majors have lately been proactive in accumulating foreign oil and gas properties to cope with the country’s increasing energy demand. Apart from this deal, Sinopec recently purchased an 18% interest in Chevron’s $6 billion-plus Gendalo-Gehem deepwater natural gas project off Indonesia's East Kalimantan province.

In October, Sinopec also acquired a 40% stake in Repsol YPF’s (REP) Brazilian unit for $7.1 billion. This was treated as China’s highest overseas investment followed by last year’s acquisition of Addax Petroleum for $7.5 billion.

The Chinese government encourages natural gas consumption given it is clean energy. Consequently, a potentially lucrative growth area for industry players are their natural gas businesses, which are expected to witness strong growth in the coming years as China moves from coal to natural gas.

We expect Sinopec to steadily expand in overseas markets, with major focus on properties in Latin America and Africa where most new prolific discoveries were reported in recent years. Our short-term recommendation for Sinopec is Outperform with the Zacks #2 Rank (Buy).