Saudi Aramco, the world's biggest oil producer, is in talks to acquire a stake in a China National Petroleum Corp refinery as well as retail assets, people familiar with the matter said - a deal that would help it sell more of its output to China amid growing competition.
The deal is estimated to be worth around $1 billion to $1.5 billion, although final valuations, assets and stakes are subject to change, they said.
The sale of a stake in an established refinery marks a departure from the past for China as foreign energy firms have generally been restricted to investing in greenfield projects. Beijing has, however, been increasingly keen to restructure the country's many sprawling state-owned enterprises.
For China, the deal would ensure a steady supply of crude to feed growing demand, while providing CNPC with fresh funds to cut down debt at a time when energy companies' profits are under pressure from sliding oil prices.
Saudi Aramco is in discussions to buy a minority stake in at least one of CNPC's new refineries and some 300 retail outlets, one of the people said. CNPC operates 26 refineries and petrochemical businesses.
"Most of the value for Saudi Aramco is in the refinery," the person said. "This will place the Saudis in a favourable position to sell their crude at time of increased supply from other countries," the person added.
Saudi Aramco declined to comment and a representative for CNPC was not available for comment. Sources declined to be identified as the negotiations are confidential.
It remains unclear when a deal will be finalised, the people said, adding that discussions started about five months ago.
Saudi Aramco is being advised by Deutsche Bank DBKGn.DE, while CNPC is working with HSBC and Citic Securities, according to the sources. Deutsche Bank and HSBC declined to comment, while Citic Securities was not available for a comment.
CNPC's planned asset sale comes after China's state-controlled oil giant Sinopec Corp raised $17.5 billion last year by selling a 29.9 per cent stake in its retail business, ahead of a potential IPO in 2016.
Saudi Aramco wants to make inroads into more advanced chemicals to diversify away from its oil and basic petrochemicals businesses. In March, it signed a new $10 billion loan deal with 27 financial institutions, partly to finance the acquisition of a stake in German rubber firm Laxness.