China Firm Buys Texas Oilfields For $1.3 Billion

In a deal that highlights China's interest in the US energy sector, Yantai Xinchao, a Chinese real estate developer, has inked a letter of intent (LOI) to buy oilfields in West Texas for $1.3 billion (8.3 billion yuan) through a limited liability partnership.

The company said in Saturday disclosure to the Shanghai Stock Exchange that the oil fields in Howard and Borden counties will be acquired from two Nevada-based companies: Tall City Exploration and Plymouth Petroleum. The filing gave few further details on the assets being purchased.

In the Saturday filing, Yantai Xinchao said it inked a LOI on Friday with limited liability partnership, Ningbo Dingliang Huitong Equity Investment Center, and its seven shareholders to purchase the oilfields through Moss Creek Resources, a Ningbo Dingliang subsidiary.

In a Sunday report, the Wall Street Journal noted that industry insiders say several of Chinese firms - including some whose main businesses are not O&G - have expressed interest in acquiring North American O&G assets. The over year-long decline in oil prices has, in many instances, rendered asset prices especially attractive.

Due to comparatively stable regulations overseeing O&G E&P, the US has long been an attractive opportunity Chinese energy firms. However, US restrictions on Chinese investment in potentially sensitive regions means Chinese investment in the US O&G sector has thus far been limited.

This deal underscores how Chinese firms are searching for new industries outside of China to be profitable, as domestic demand slows in tandem with a slowing economy.

The WSJ noted that Chinese companies are looking abroad for energy sector deals due in part to the strict domestic restrictions, which renders investment in O&G nearly impossible. State-run companies dominate China’s energy sector, which has left little room for independent companies to invest. As part of ongoing reforms, the Chinese government says it seeks to attract more private capital into the O&G sector.

Yantai Xinchao said the deal has been approved by the Committee on Foreign Investment in the US. The company is based in the coastal province of Shandong. It reported 2014 revenues of approximately 1 billion yuan. The company's principal focus is property development and producing electronics components.

OilPro