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BG's Brazilian oil finds tempt Chinese groups

An offshore oil platform sits off the coast of Rio de Janeiro.

Felipe Dana/AP

Chinese oil companies have been circling BG Group PLC's fast-growing Brazilian business, according to people familiar with the situation.

Several industry specialists said BG had considered the sale of a minority stake in its thriving oil and gas business and that Chinese oil companies had been among those interested in the asset.

One person familiar with the matter said there had been talks with at least one Chinese oil company. Among the companies rumoured as potential investors include China National Petroleum Corp. and Sinopec, the nation's largest refiner. The companies declined to comment "BG has got fantastic discoveries. The question is how do they pay for it all," said one of the people familiar with the matter. "One option is to bring in a partner."

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Brazil is at the heart of BG's ambitious growth strategy for the next decade and is one of the company's four "main centres" of investment over the next five years. BG board members visited Rio de Janeiro early this week, showcasing the key business.

BG, which has a market capitalization of £42.8-billion ($67.6-billion U.S.), in June doubled its oil reserves and resources estimates for the region, called the Santos Basin.

There have been no formal negotiations for a stake in the business, whose reserves' net asset value is estimated by analysts at Liberum Securities at $32.7-billion.

BG has indicated it has no immediate need for additional funding. At its second-quarter results in July, the company said that despite the recent resource upgrade to its Brazilian assets, it expected to be able to recover virtually all of "the resource ... using the same surface facilities we had envisaged in our field development plans".

In January, BG shares surged after Morgan Stanley, one of the group's house brokers, called for a spin-off of the company's Brazilian oil fields, arguing investors were undervaluing the offshore acreage.

The finds have attracted the interest the world's biggest oil and gas companies in recent years. Petroleo Brasileiro SA, Brazil's state oil company, plans to invest $224.7-billion to exploit the vast offshore oil reserves, lying below a two-kilometre-deep salt layer under the seabed and estimated to hold up to 50 billion barrels of oil. It has the largest stake of the three partners in the fields, which include BG and Repsol YPF SA.

Petrobras already has an agreement to sell Sinopec 200,000 barrels of oil per day – about a 10th of its current oil production – from 2010 to 2019. Spain's Repsol sold at stake in its Brazilian business to Sinopec for $7-billion last year.

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BG and its adviser, Goldman Sachs, declined to comment.

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