The two biggest oil and gas acquisitions in Latin American history have been announced in the past three months.
Sinopec, the largest Chinese oil producer by sales, has been the buyer in both cases. Late yesterday, Sinopec announced it was spending $2.45-billion (U.S.) to buy all of Occidental's assets in Argentina. In October, Sinopec agreed to buy 40 per cent of Repsol's Brazilian operations for $7.1-billion.
And in both deals, Canada's Scotia Waterous was the sole adviser. (Scotia Waterous is the oil and gas advisory arm of Bank of Nova Scotia ).
Adam Waterous, head of Scotia Waterous, says that there are three main characteristics of the region that are attractive to Chinese acquirors.
The assets tend to be heavy on oil, relative to gas, and Chinese buyers are seeking oil.
Second, the oil plays in the region tend to have been "underexploited" relative to other areas of the developed world, leaving plenty of potential upside.
Finally, Chinese companies get a warm welcome from governments in the region because "one of the great things about Chinese companies is the investment above and beyond the original acquisition," said Mr. Waterous. "Generally, these acquisitions are the first pitch in a long ball game where they [the Chinese buyers] are going to spend a lot of money and benefit the local economy."
But how has Scotia, a Canadian firm, managed to wangle the only advisory ticket on both the deals? These are the kinds of transactions that global bulge brackets would be dying to get their hands on.
Scotia has managed to marry its long-standing position as a leader in Latin American oil and gas advisory work to a burgeoning relationship with Sinopec.
In both cases, Scotia bankers were able to sniff out a set of assets in Latin America that might be for sale, and bring it to Sinopec. Deals soon followed, and so will big fee cheques for Scotia (though Mr. Waterous declines to talk about those.) With Repsol, the Brazilian company was considering an initial public offering to raise capital. That's costly, risky and time consuming. Scotia instead suggested that Repsol should talk to Sinopec, which might be interested in taking the whole investment for itself.
Similarly, the Occidental transaction was a negotiated, one-off transaction.
The deal came out of a conversation that Scotia bankers had with Occidental about its portfolio of assets, which revealed that the producer might consider its Argentine assets not part of its core business. But Occidental didn't want to start a big sale process. The company wanted to do a "quick, discreet and all-cash" transaction, said Mr. Waterous.
There aren't that many companies that can write that big of a cheque. Sinopec demonstrated in the Repsol deal that it is one of them.
"We thought that most logical buyer in the world was Sinopec," said Mr. Waterous. "Armed with that information, we took the opportunity to Sinopec."