State Rejects Chinese Bid for TNK-BP Unit

HONG KONG -- Russia has rejected a bid by China Oilfield Services to buy a unit of TNK-BP, felling what would have been the Chinese company's first acquisition abroad at the final hurdle and sending its shares 12 percent lower.

State-owned China Oilfield, the drilling and equipment arm of top Chinese offshore oil producer CNOOC, had agreed to buy oil services firm STU from TNK-BP for more than $10 million, making its maiden foray into the world's second-largest oil exporting country.

Now, a company official said the government had thrown out the deal -- which both companies had thought would go ahead with little obstacle -- without a word of explanation.

"It has been rejected by the Russian government in the final phase. They did not give us any reason," said the official, who has direct knowledge of the matter but is not cleared to speak to reporters.

China Oilfield had expected the deal to be finalized in April 2007. It had already won Beijing's blessing and obtained approval from both companies.

Still, analysts said the setback would not halt China Oilfield's ambitions to expand abroad.

"I don't think it will have a huge impact on China Oilfield because, anyway, that is a very small investment compared with what they do," an analyst at a major U.S. investment bank said.

Despite the failure, the company said it would keep exploring acquisitions in Russia.

"Russia is still one of our strategic markets. We will continue looking for other projects there," the official said. "But we may change our approach for future acquisitions."

But if it eventually wins entry into Russia, it will still lag behind Western oilfield services giants, such as Schlumberger and Halliburton, which have bought into local independents and now control about one-third of the Russian service sector.

Russian oil majors and independents each hold one-third.