China’s influence grows as Kazakhstan’s oil proves to be recession buffer. By Matt Byrne
As the West continues to bear the brunt of the recession, US law firms are concentrating their efforts overseas, especially towards China.
Dewey & LeBoeuf is one firm that is seeing its global investments come to fruition. Dewey has acted for China National Petroleum Corporation (CNPC) – one of the world’s biggest companies with more than a million employees – since 2002, and its latest instruction highlights China’s increasing influence and financial muscle.
On this latest deal, a $3.3bn (£2bn) oil joint venture, Dewey turned to relationship partner and Beijing head Ingrid Wenying Zhu-Clark along with Brian Zimbler, a London-based partner and managing partner of Dewey’s Moscow office.
Late in April CNPC subsidiary CNPC Exploration and Development Company signed a deal with the Kazakh state oil company KazMunaiGas (KMG) to acquire one of Kazakhstan’s largest oil companies, MangistauMunaiGas (MMG), from Central Asia Petroleum (CAP).
Norton Rose London corporate finance partner Simon Cox led a team advising KMG, while Skadden Arps Slate Meagher & Flom partners Hunter Baker
in London and Chris Baker in Paris led for the seller CAP.
“This is probably the last independently owned oil and gas producer in Kazakhstan,” says Zimbler, a fact that highlights the strategic importance of the project.
As Cox puts it: “This is obviously a good example of the increasing importance of China in international natural resources projects as well as China as a source of funding for such projects”.
KMG is the national oil and gas company of Kazakhstan, a region that is already a major source of oil and only likely to become more important over the coming years.
“Kazakhstan has historically had two problems,” says Zimbler. “Although it is on the Caspian Sea it’s effectively landlocked, so getting the oil out has always been a problem.”
Now, however, there is a growing number of oil and gas transportation projects, primarily pipelines, underway.
“Second,” adds Zimbler, ”Kazakhstan has not historically seen great investment in terms of getting the oil and gas out of the ground.”
This deal has taken significant steps in changing that. At the signing of the deal in April, President Nazarbayev of Kazakhstan announced a $5bn financing package funded by the Chinese state aimed at boosting the region’s oil and gas-producing capabilities. The Export-Import Bank of China has also provided debt financing to this joint venture.
“This financing is part of a bigger package for additional projects,” says Zimbler. “The production capacity of the country is going to grow and Kazakhstan is going to play an increasing role in the world.”
One of Kazakhstan’s first major projects was the Tengiz Field, a joint venture between Chevron, ExxonMobil, the Kazakhstan government (via KMG) and Russian-UK business LukArco.
The field was discovered in 1979 and, following recent investment and expansion, currently produces around 540,000 barrels of oil per day. With an estimated total of 25 billion barrels of oil in place, Chevron has claimed it could produce 700,000 barrels per day by the end of the decade.
“Despite the world economic crisis, Kazakhstan is on the rise long-term,” says Zimbler.
For energy powerhouse Dewey, the rise of Kazakhstan and CNPC is a major positive to set against a year of turmoil, both internally and in the wider market.
Zimbler was one of the key partners responsible for bringing in the client while at legacy firm LeBoeuf Lamb Greene & MacRae (Wenying Zhu-Clark, the day-to-day relationship partner, is also key to the CNPC relationship).
Zimbler first acted for CNPC in 2002 when it was one of the bidders for Russian oil company Slavneft. It failed to win that auction, but for LeBoeuf – and subsequently the merged firm – there was a greater prize.
“That Moscow-based deal was a great opportunity for me and the firm to learn about the company,” says Zimbler. “Now this most recent deal, governed by English law involving Russian speakers and requiring in-depth knowledge of Kazakhstan, is the kind I’ve been waiting for my whole career.”
Norton Rose’s Cox says the deal for longstanding client KMG highlights the firm’s “substantial Kazakhstan practice”.
“This deal brings together two important jurisdictions for the firm, and although we don’t have an office in Kazakhstan, we do have a long track record on projects there,” adds Cox. “I don’t think we have any immediate plans to open an office there, but it’s certainly an area where we’re actively involved.”