Nice work, chairman Fu. For the first seven months of this year, shares in Canada’s Daylight Energy, a well-run but capital-constrained oil and gas company, traded at an average C$10.15. In the 10 weeks after that, as investors dumped any company funding long-term growth through its own short-term cash flows, Daylight collapsed to C$4.59 (just three of 258 stocks on the Toronto benchmark did worse during that period). Now, in comes China Petroleum & Chemical Corp with an agreed C$2.2bn (US$2.1bn) bid, worth C$10.08 a share. Only on the very shortest of horizons does that seem a fair premium for control.
Not that you can blame Sinopec, as CPCC is better known, or Fu Chengyu, its new(ish) chairman. Mr Fu, former president of Cnooc, the smaller, offshore exploration specialist, is known for achieving consistent upstream production growth. As such, he was the prime candidate to steer Asia’s biggest refiner to a more secure, diversified future. Almost half of the 1.1m barrels of oil equivalent produced by Sinopec’s Hong Kong-listed subsidiary last year came from Shengli, a declining, 50-year-old field in eastern Shandong. Only through acquisition can the parent hope to keep pace with China’s demand.
What Daylight offers is a portfolio of gas assets – two-thirds of its output in the second quarter – and a foothold in unconventionals. Daylight’s shale gas prospect in Alberta has drawn parallels with the more highly developed Eagle Ford acreage in Texas, into which Cnooc, BHP Billiton and others have poured resources during the past year. China’s development of its own unconventional gas reserves, perhaps the world’s largest, is still embryonic, yet Mr Fu signalled in August that they would be the main driver of Sinopec’s longer-term growth. Now the Canadian brain drain can begin.