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Sinopec expands in China with Daylight purchase

by Paul Whitfield | Published October 10, 2011 at 10:30 AM

China Petrochemical Corp. has agreed to pay C$2.2 billion ($2.1 billion) for Canada's Daylight Energy Ltd., taking advantage of a dip in energy sector prices to expand and diversify China's holdings in Canada's oil and gas fields.

China's leading refiner, state-owned China Petrochemical, known as Sinopec, will offer C$10.08 per share for the Calgary, Alberta-based Daylight. That is more than double the target's most recent closing price of C$4.59 per share and a 43.6% premium to its weighted-average price over the past 60 days.

Shares in Daylight have tumbled almost 54% over the past year amid fears that an economic slowdown in Europe and the U.S. would weigh on energy prices.

"This transaction...recognizes the highly attractive asset portfolio and exceptional team that we have assembled," Daylight President and CEO Anthony Lambert said in a statement. "The efforts and accomplishments of this team will be built upon through increased investment in the business and acceleration of our development and exploration opportunities."

Daylight owns licenses to develop about 324,000 acres of holdings in Western Canada. Its three projects have proven and probable reserves of about 174 million barrels of oil equivalent and it expects to produce about 42,000 barrels of oil equivalent per day by the end of its fiscal year 2011. About 45% of that production will be oil and 55% natural gas liquids.

The acquisition of Daylight adds to a steady stream of Canadian energy assets by China's state owned energy companies. Those deals have tended to focus on Canada's huge oil sands fields, rather than shale-gas operations such as those operated by Daylight.

That focus may be shifting as China seeks technology and expertise that will help it develop its huge domestic shale gas fields. Chinese interest in Canada's liquefied gas could increase further with the development of the Kitimat LNG Termina, which would provide a fast route for the export of Canadian gas to Asia. The terminal's developer, Encana Corp., said earlier this month that it would decide early next year if it will go ahead with the project, which could begin shipping gas from the coast of British Columbia by 2015.

Sinopec "will further expand its portfolio in Canada as it advances its international businesses," the company said in a statement on Monday.

Sinopec is making the offer through its subsidiary Sinopec International Petroleum Exploration and Production Corp. Daylight said the offer was dependent on approval from more than two-thirds of its shareholders.

Daylight tapped Canaccord Genuity Corp. and Canadian Imperial Bank of Commerce's CIBC World Markets Inc. unit for financial advice. Blake, Cassels & Graydon LLP is providing legal counsel.

Sinopec is taking financial advice from Barclays plc. Its legal advisers are Vinson & Elkins LLP and Bennett Jones LLP.

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