Tags: sinopec | daylight | energy | M&A

China's Sinopec to Buy Canada’s Daylight Energy

Sunday, 09 October 2011 07:49 PM

China Petrochemical Corp., the country’s biggest refiner, has agreed to buy Canada’s Daylight Energy Ltd., an oil and natural gas production company, for about C$2.2 billion ($2.11 billion) in cash.

The offer of C$10.08 per share from China Petrochemical, known as Sinopec, is more than double Daylight’s closing price of C$4.59 on Oct. 7, the company said in a statement yesterday.

Chinese oil companies such as Sinopec and Cnooc Ltd. are investing in oil-and-gas producing areas outside Asia to diversify their access to energy resources and gain expertise on new drilling techniques that have opened fresh areas to production. Sinopec paid $4.65 billion last year to buy a stake in Syncrude Canada Ltd., while Cnooc on July 20 announced it would spend $2.1 billion to acquire Opti Canada Inc.

Energy stocks have fallen as fears that Europe’s sovereign- debt crisis will spread pushed crude prices below $100 last week for the first time since February, according to Bloomberg data.

Daylight’s shares declined 54 percent in the past year, according to data compiled by Bloomberg, making the company an ideal takeover target for Sinopec, Michael Tims, chairman of investment bank Peters & Co. Limited in Calgary, said in a phone interview today.

Investment in Canada

“Clearly we’ve got a confluence of a lot of adverse events in the global picture which have conspired to bring share prices down,” he said. “Those who have a longer time horizon may find this to be a great time.”

More investment in Canada by international companies such as Cnooc or India’s Reliance Industries Ltd. may be imminent, Tims said.

Investors feared Daylight’s relatively high debt load compared to peers, combined with a fall in oil prices, would crimp earnings, Geoff Ready, an analyst with Haywood Securities LLC in Toronto, said in a telephone interview today.

“Daylight has a large inventory of relatively low risk development locations and their constraint was always capital,” said Ready, who rates Daylight “outperform” and doesn’t own shares. “That obviously disappears now.”

Sinopec’s purchase “recognizes the highly attractive asset portfolio” the company has, Daylight Energy Chief Executive Officer Anthony Lambert said in the statement.

Asian Buyers

Asian buyers may spend $150 billion by 2016 to secure energy resources for their faster-growing economies and targets could include Tullow Oil Plc, Canadian Oil Sands Ltd. and Kosmos Energy Ltd., according to Sanford C. Bernstein Co.

Sinopec is one of 10 companies helping Enbridge Inc. pay for the regulatory approval process of the proposed Northern Gateway pipeline from Alberta’s oil sands to a British Columbia port, where tankers bound for Asian would be loaded.

Calgary-based Daylight’s assets include more than 300,000 acres of land in areas rich with oil, natural gas and natural-gas condensate, an oil-like substance that sells at higher prices than natural gas and can make drilling more attractive, according to the company.

Daylight Energy has oil and natural gas properties in Alberta and British Columbia. The Elmworth project in the Deep Basin area of Alberta and northeastern British Columbia contains several natural gas drilling targets. The company also owns rights adjacent to the Pembina Cardium conventional oil pool, which has produced over 1 billion barrels of oil since discovery in the 1950s.

Board Approved

William Lacey, Daylight’s vice president of capital markets, said in an e-mail that the company declined to comment beyond the statement.

Daylight said its board has approved the purchase. Sinopec is making the purchase through its Sinopec International Petroleum Exploration and Production Corp. unit.

Canaccord Genuity Corp. and Canadian Imperial Bank of Commerce’s CIBC World Markets Inc. unit are advising Daylight in the transaction, and Blake, Cassels & Graydon LLP is the company’s legal adviser, Daylight said.

Sinopec is being advised by Barclays Plc’s Barclays Capital and Vinson & Elkins LLP and Bennett Jones LLP are its legal advisers.

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China Petrochemical Corp., the country s biggest refiner, has agreed to buy Canada s Daylight Energy Ltd., an oil and natural gas production company, for about C$2.2 billion ($2.11 billion) in cash. The offer of C$10.08 per share from China Petrochemical, known as Sinopec,...
Sunday, 09 October 2011 07:49 PM
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