China Oilfield Services Ltd., a unit of China’s top offshore oil and gas producer will pay $16.66 (85 kroner) a share, an 18.7% premium to last week’s closing price. Awilco’s board unanimously approved the offer and the deal, which still requires regulatory approval, but should be closed by October. China Oilfield will borrow about $2.3 billion to finance the deal.

“I think 85 kroner a share is a good price,” Stian Eliassen, an analyst at Carnegie ASA in Oslo, told Bloomberg News. “They’re very interested in Awilco’s jack-up rigs, seven of which will be available to be leased by clients next year.”

Oil’s record-breaking surge to $145 a barrel has spurred a rush in exploration that has strained the global supply of offshore drilling rigs. Since 2004, the price of jack-up rigs, which are used frequently in shallow water drilling operations, has quadrupled to $200,000 a day, ODS-Petrodata reported.

The deal with Awilco will immediately increase CNOOC’s own fleet of rigs by 47%, taking it from 15 units to 22. The company will control a total of 34 operated platforms once the deal is completed.

“Awilco’s units are modern and basically delivered or coming near to it, so you have instantaneous cash flow,” Gavin Strachan, an ODS-Petrodata research consultant told Bloomberg News. “You make more money by buying newly delivered rigs than by putting in an order for a new rig, because cash flow will be very significant over the next couple of years.”

“If you put in an order for an offshore rig today, you’ll generally get it delivered in 2011,” he added.

The acquisition will also expand China Oilfield’s overseas operations, which accounted for just 18% of its revenue last year. The company would like overseas revenue to account for 30% of its total income by 2010.

It’s also a step forward for CNOOC, which has been looking to expand but has been unable to secure a solid foothold abroad.

“Our aim is to become an international oilfield services company with strong competence in global markets by 2010. That cannot be achieved just by organic growth,” China Oilfield CFO Zhong Hua said at a press conference yesterday (Monday), adding that the company would continue to pursue more acquisitions.

But CNOOC has seen its share of failures, having failed to obtain Russian oil services firm STU from TNK-BP for more than $10 million, and in 2005, was forced to abandon its $18.5 billion bid for Unocal after a political uproar in the United States.

CNOOC has taken the lessons of the past to heart, as the deal with Oslo-based Awilco marks a shift in strategy.

“Compared with U.S. firms, European companies have less political obstacles for Chinese companies to make acquisitions,” BOCI analyst Lawrence Lau told Reuters.

China Oilfield has said it views Russia, the Middle East and the Gulf of Mexico as strategic markets it needs to explore.

Source: CNOOC Taps Overseas Markets with Awilco Takeover