Nations Energy sold for US$1.9-billion: Purchased by China for its Kazakh oil assets
October 27, 2006National Post
By Claudia Cattaneo
CALGARY * Nations Energy Co., a private Canadian oil and gas company with operations in Kazakhstan that only seven years ago was penniless, was purchased yesterday for US$1.9-billion by CITIC Group, China's flagship state investment group.
After three years of negotiations with several Chinese companies, Nations is rushing to finalize the deal by the end of the year to avoid paying the Kazakh government US$380-million in tax. A Kazakhstan law that starts on Jan. 1 levies a 20% tax on the sale by non-residents of assets that have a majority of their value in the country.
"Dealing with the Chinese is a long, drawn-out process," said David Wilson, executive vice-president and a shareholder of Nations. "We'll get it done by the end of the year."
Nations was founded in 1996 as a private Canadian company. A year later, it purchased 94.6% of JSC Karazhanbasmunai, growing its heavy oil production from an average of 4,900 barrels a day in 1999 to more than 50,000 b/d.
In 1999, "we didn't have any money," said Mr. Wilson. "We did a small private capitalization and turned the field around. We brought in a new team. We are considered by a lot of people as one of the success stories."
The company is controlled by an Indonesian businessman, London-based Hashim Djojohadikusumo, who had links to former Indonesian president Haji Mohammad Suharto.
According to the Financial Times, Mr. Djojohadikusumo, president and chairman of Nations, rose to prominence as a businessman during Suharto's rule. His brother, Prabowo Subianto, is the former husband of one of the strongman's daughters.
Nations is the second Canadian-based company with operations in Kazakhstan bought by the Chinese, who are investing in pipelines in the country to ensure they get the country's oil.
Last year, China National Petroleum Corp., China's nation's largest oil company, purchased PetroKazakhstan Inc. for US$4.18-billion.
Zhang Jijing, director and assistant president of CITIC Group, said the Kazakhstan acquisition is an important part of its oil and gas expansion abroad.
The acquisition "is expected to provide CITIC with a proven base for its overseas energy business expansion strategy in one of Central Asia's most dynamic and successful oil producing countries, a stable country with a highly-rated and fast-growing economy," he said in a statement.
The deal has been approved by the government of China, but requires approval from Kazakhstan, which has pre-emptive rights to buy the company.
The Kazakh assets account for about 85% of Nations. The remaining assets in Indonesia, California and Azerbaijan will be spun off into a new Canadian company that will become Nations' new focus, said Mr. Wilson, an exploration geologist who joined Nations after working for several large Canadian oil companies.
While Nations doesn't have operations in Canada, it considers itself a Canadian company because it was originally founded by Canadian shareholders.
"From a corporate standpoint, when you operate internationally it's best to have a Canadian registered company," Mr. Wilson said. "There is a big advantage to that, like the Canadian passport."
CITIC Group, based in Beijing, is one of the largest diversified investment groups in China, with US$100-billion in assets and 40 subsidiaries.