Inpex and Teikoku, Japan's third-largest oil explorer, announced the agreed, all-share takeover on Saturday, Nov. 5. Shareholders of Inpex, which has a market value of 1.57 trillion yen, will own about 81 percent of a new holding company. Teikoku shareholders will own the remainder. The takeover will allow Inpex to bid for drilling rights it previously lacked the scale to pursue at a time when Japan is seeking to add energy supplies from fields in Russia, the Middle East and Southeast Asia. Oil prices have risen to record highs this year on concern about shortages. ``Some resource auctions require the bidders to have a certain amount of assets and production, and if a company doesn't meet the requirement, it can't even participate,'' Kunihiko Matsuo, chairman of Inpex, told reporters Nov. 5 in Tokyo, where both companies are based. ``It's important to be bigger to expand overseas businesses.'' Teikoku's shares have more than doubled this year, while Inpex stock has risen 58 percent. The takeover still will leave government-controlled Inpex dwarfed by its biggest Asian rivals. PetroChina Co. is worth eightfold more than the enlarged Inpex and India's Oil & Natural Gas Corp. more than double. As of Friday's close, PetroChina, Asia's most profitable company in the six months ended June 30, had a market value of HK$1.08 trillion ($140 billion) and Oil & Natural Gas, India's biggest explorer, was worth 1.32 trillion rupees ($29 billion). National Champion Inpex emerged as the flagship for Japanese oil and gas exploration after parliament in 2002 voted to break up government-run Japan National Oil Corp. The decision was aimed at turning around drilling businesses that amassed 1.9 trillion yen of debt since 1967 trying to secure overseas supplies for the world's second-biggest economy. A government panel in 2003 recommended that Japan create a publicly traded, national explorer capable of competing globally. Inpex, which was founded in 1966 to explore and develop fields in Indonesia, was chosen to lead overseas drilling to help meet demand in Asia's biggest oil-importing nation. It was listed on the Tokyo Stock Exchange in November last year. Japan is the world's third-biggest oil consumer and imports 99 percent of its requirements. More than four-fifths of imports come from Saudi Arabia and other Middle Eastern countries. Teikoku's Output Shares in Inpex and Teikoku will be delisted on March 28, 2006 and Inpex Holdings Inc. will be listed on April 3, a statement from the companies said. JPMorgan Chase & Co. advised Inpex, and Goldman Sachs Group Inc. advised Teikoku. Teikoku has oil and gas output equal to some 42,000 barrels a day of oil, taking the total at Inpex Holdings to about 372,000 barrels a day. The new company aims to boost production to 563,000 barrels a day by March 2010, the statement said. PetroChina, China's biggest oil producer, pumps about 2.6 million barrels a day of oil equivalent, according to a company statement on Oct. 17. Oil & Natural Gas pumps about 542,000 barrels a day of oil, Chairman Subir Raha said Sept. 21. ``We face the need to become larger in term of assets and output to win in the competition for resources overseas,'' Inpex's Matsuo said. ``Our businesses are quite complementary.'' East China Sea The merger will give Inpex access to Teikoku's overseas fields, including those in Ecuador and rights to drill in the East China Sea. Inpex pumps oil and gas at projects in the southwest Caspian Sea, off the coast of Australia and in Indonesia. ``This tie-up is mainly to develop Inpex's competitive strength overseas as it participates in auctions held by producer countries,'' said Yoshihisa Miyamoto, an analyst at Okasan Securities Co. in Tokyo. ``The combination of national and foreign operations is a merit.'' The East China Sea fields, where Teikoku has drilling rights, are in dispute between Japan and China, who disagree on who owns as much as 200 billion cubic meters of natural gas deposits near the border, enough to supply Japan for more than two years. Japan wants China to halt drilling that it says will siphon gas from Japanese territory, a demand rejected by its neighbor. Japanese Prime Minister Junichiro Koizumi on Oct. 4 called for a ``firm'' response to surging oil prices this year, to avoid a repeat of what he called the ``panic'' of the oil shocks of the 1970s. More Competition China National Petroleum Corp., the nation's biggest oil company and parent of Hong-Kong traded PetroChina, last month bought PetroKazakhstan Inc. for $4.18 billion, fending off Russia's OAO Lukoil and Oil & Natural Gas. In August, Chevron Corp., the second-largest U.S. oil company, beat out China's Cnooc Ltd. to take over Unocal Corp. for $17.8 billion, after U.S. lawmakers opposed Cnooc's $18.5 billion cash offer. ``As competition for resources has intensified globally, major European and American companies, in addition to national companies in countries such as China and India, have sought mergers and acquisitions to boost their size and profitability,'' Inpex said in the statement. Japan's government, concerned China will receive most of Siberia's $18 billion in annual oil and gas exports, is urging Russian President Vladimir Putin to accelerate plans to build an oil pipeline to Japan. Russia Russia will first build a pipeline from East Siberia to China and then a smaller line to the Pacific coast near Japan, Putin said Sept. 5. Moscow-based OAO Gazprom, Russia's gas- exporting monopoly, will make China a priority in Asian sales, Deputy Chief Executive Alexander Medvedev said in Beijing Sept. 21. At stake is untapped oil that would supply Japan for nine years, and enough gas to meet the nation's needs for seven decades. Japan plans to use a visit by Putin to Tokyo this month to push for an $11.5 billion Siberian oil pipeline directed to the Pacific, and not China. Russia is the world's second-largest oil producer. In October, Inpex and Teikoku were among 18 companies that won exploration rights in Libya and will spend about $482.5 million to develop Africa's largest crude-oil reserves. At least 49 companies registered to bid. In August, Inpex boosted its full-year profit forecast by almost 60 percent to 93 billion yen because of higher oil prices. Teikoku's full-year profit will increase by 60 percent this year on higher natural gas prices, the Nihon Keizai newspaper said last week. PIN/BLOOMBERG