Itochu, CITIC Resources team up for M&A opportunities

29 June 2016, Week 25 Issue 531

Japan’s Itochu is teaming up with Chinese oilfield operator CITIC Resources to invest in oil and gas projects as the recovery in oil prices encourages would-be deal makers to act fast.

Hong Kong-listed CITIC Resources issued a statement last week saying the partners would work together to identify, acquire and invest in oil and gas exploration and production assets and projects.

“We want to look into oil and gas deals together, as there are promising assets on sale and natural resource prices have apparently stopped falling and have been stabilised,” an Itochu spokesman added.

The partnership will allow Itochu to benefit from CITIC Resources’ better access to natural resource deals, according to Itochu president Masahiro Okafuji.

The two companies are targeting low-risk projects, aiming to invest US$946 million or more per project, according to the Nikkei Asian Review, although neither side has confirmed this.

The move further cements the relationship between CITIC Resources and Itochu. In 2015, the Japanese company agreed with Thailand’s Charoen Pokphand to invest US$10 billion jointly in parent CITIC.

This is the third in a string of joint projects between Itochu and CITIC, which forged a business and capital alliance in January 2015. They also earlier invested jointly in a Chinese apparel maker and debuted together on the e-commerce market.

News of the memorandum of understanding (MoU) came just days after Tokyo Gas said it had bought a 25% stake in the US’ Eagle Ford shale gas formation, suggesting energy merger and acquisition activity may finally be picking up.

While analysts have long been predicting that a tumble in oil prices that started in summer 2014 would create opportunities for a wave of merger and acquisition activity as more robust energy companies picked up assets from struggling minnows, capital constraints and nervousness about a further deterioration in market conditions have restrained deal flow to a trickle.

With oil prices now up more than 30% this year, however, and US gas prices gaining nearly 20%, the rush is on to push through deals before assets start to look expensive.

Edited by

Andrew Kemp


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