/REUTERS, Singapore, Charlie Zhu, October 7, 05/ - Tight connections between Astana and Peking, most probably, will help Chinese state oil firm CNPC to bring to an end $4.2-billion deal, as a result of which under control of CPR will go Canadian PetroKazakhstan, producing and processing oil in Kazakhstan.

This was announced on Friday by senior foreign operations advisor of Chinese company Tun Syoguan.

This week the government of Kazakhstan announced, that pretends to control over PetroKazakhstan, despite its intentions to go under control of CNPC.

"Before we decided to buy (PetroKazakhstan), we notified Kazakh government and they agreed with the plan", - Tun said.

At the same time some investors are frightened, that intervention of Kazakh authorities may hinder the deal, as it was in the course of attempt of Chinese company CNOOC Ltd. to buy for $18.5 bn. American oil producer Unocal.

This week lower house of Kazakhstan's parliament voted for the law, allowing the government to interfere in sale of oil assets by foreign shareholders.

Simultaneously with this, announcement of LUKOIL about "option" for property of PetroKazakhstan in joint enterprise was pronounced.

PetroKazakhstan shares cheapened by 5.0% in comparison with price offered by CNPC - $55 per share, in connection with fears of investors regarding possible failure of deal.

"Of course, in Kazakhstan may start concern in connection with sale of PetroKazakhstan", - Moscow analyst of oil and gas sector of the market United Financial Group Steven O'Sallivan said.

At the same time, sources close to the deal, are confident in its success.

"I do not think, that Kazakhstan is ready again to slap in the face of China", - the source close to CNPC said.

REVENGE?

About deal was announced sooner after visit in Kazakhstan of China president Hu Tsintao in July, and Astana should twice think before to cancel it, analysts and banking sources are saying.

"I think, that Kazakhstan and China will achieve some form of political understanding", - O'Sallivan said.

CNPC firmly intends to bring the deal to an end, Peking does not want to see one more unsuccessful purchase of its companies' expansion abroad, the source close to the deal are saying.

PetroKazakhstan may become the biggest foreign acquisition of China for today.

In 2003 Chinese CNOOC Ltd. and Sinopec Corp. have already been defeated in Kazakhstan by western companies, using their right of veto in order to prevent sale of British stake of BG Group in giant oil field Kashagan.

After this, owned by Britain block was bought by the government of Kazakhstan represented by state company Kazmunaigas.

CNPC is feeling confidently itself in Kazakhstan, which is for him the second by size of oil source after Sudan. CNPC and Kazmunaigas jointly building 1,000-km. pipeline in order to supply China with Caspian oil.

Offer of CNPC International, division of CNPC about purchase was taken by PetroKazakhstan board of directors and should be approved by shareholders on October 18.

CNPC will not have to borrow money from the government, as it had to do in attempt to buy Unocal company CNOOC. In contrast to CNOOC, where shareholders were against too expensive merging with Unocal, CNPC fully owned by the government, analysts note.

On the other hand, they say, Astana may refuse to China in order to keep under its control petroleum refinery in Chimkent, owned by PetroKazakhstan, the most expensive out of three in the country.

However CNPC may go without PR, analysts consider, noting that the company is already building big petroleum refinery on the north-west of China in order to process Kazakh oil.

LUKOIL FACTOR

While it is unclear, whether LUKOIL really has options for PetroKazakhstan block in their joint enterprise, about which announced - taking into account, that CNPC buys the whole company. But in this case LUKOIL, trying to increase its presence in oil sector of Kazakhstan, will try not to spoil relations with local government.

Recent announcement of LUKOIL to purchase for $2 bn. Canadian Nelson Resources also raises the question about collaboration between Russian company and CNPC.

"Nelson Resources have joint enterprise with CNPC in (oil) field of Northern Buzachi. I see clear opportunity for exchange of assets, which will satisfy both parties ", - O'Sallivan said.

[2005-10-07]