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Chinese state petroleum company Sinopec has reportedly reached an agreement with Spanish oil company Repsol to buy its 57.4% stake in YPF, Argentina's largest energy firm, at the price of around US$16 billion.
Sinopec has been keeping an eye on the resources in Argentina and has set aside funds to purchase local assets there. A former senior official at Sinopec said the reported deal is possible, but the company has not commented on the story yet.
The rumor has been spreading through the market for some time. China Development Bank has agreed to support the deal with a specific amount of compensation, said an anonymous analyst. Sinopec will have a huge opportunity to handle oil resource in Argentina due to the lack of operations held by other global oil companies in the country. However, the move also comes with significant risk to Sinopec due to unstable oil policy in the South American country, the analyst added.
The Argentinean government reportedly plans to nationalize YFP, leading the worries for analysts about the deal. Wan Xuezhi, an analyst from China Investment Consulting, said that the biggest risk for Sinopec is the possible nationalization of YPF, causing their future stake to significantly shrink.
The abundant oil resources in Argentina are likely to outweigh the risks for Sinopec. The company is currently aiming to gain new oil resources overseas, expanding reserves and decreasing dependency on crude oil from the Middle East, where unstable prices have fueled the company's determination to expand.
The total amount of the deal is predicted to be US$16-$18 billion, the largest acquisition for a Chinese company overseas.
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