Sinochem Group Plans to Sell $2 Billion Stake in U.S. Shale Gas, 11-Year Investment May Go to Waste, Asian Buyers Could Step In

China's state-owned oil and chemicals company Sinochem plans to sell its 40% stake in a US shale gas joint venture, valuing it at more than $2bn, according to a Reuters report. Sinochem has hired Barclays Bank as an investment adviser on a possible sale of its stake in the Wolfcamp joint venture, according to an insider who asked not to be named. The person further pointed out that as the majority shareholder and operator of the joint venture, ExxonMobil has the right of first refusal. However, the person cautioned that the sale is at a preliminary stage and there is no guarantee of any deal with ExxonMobil or other potential buyers, which could include Asian national oil companies. At the same time, Sinochem may choose to retain its stake.

The sale will mark the end of Sinochem's 11-year operation in the Permian Basin of Texas, the heart of the US shale revolution. The rapid growth of oil production in the region over the past 11 years has catapulted the United States to become the global leader in oil production and exports.

Sinochem bought its stake in the joint venture from Pioneer Resources for $1.7 billion in 2013, when the joint venture had a land area of about 83,000 acres (about 33,590 hectares) and daily production of about 10,000 barrels of oil equivalent. According to one source, the region is now producing more than 44,000 barrels per day on average, about 75 percent of which is oil.

In May, ExxonMobil completed its $60bn acquisition of Pioneer Oil, the biggest deal in a record wave of consolidation in the US oil industry, making it the biggest producer in the Permian Basin.

Frank Ning, Sinochem's former chairman, said in 2017 that Sinochem had been reassessing its struggling oil exploration and production business in recent years, focusing instead on new materials and life sciences. The Wolfcamp joint venture is Sinochem's largest oil and gas production asset outside China, according to company insiders. The company has been looking to sell its 40 percent stake in Brazil's Peregrino field since 2017.

According to Reuters, Sinochem will merge with ChemChina in 2021, a move that creates new challenges for Sinochem. Earlier this year, Sinochem had to close several refineries in eastern China to cut losses because of weak fuel demand in the country.