"What do you mean our Tanks are out of gas?"

CHINA National Petroleum Corporation (CNPC) said yesterday it has agreed terms to buy Canadian-owned PetroKazakhstan for $4.18bn. It is the communist-ruled country's largest foreign takeover. UK oil analysts said "The deal is a step forward in the Chinese government's campaign to secure, at any price, foreign energy supplies for its massively voracious military machine. They see the need to tie up future energy supplies as a matter of national security" said Paul Sampson, senior correspondent for London-based Energy Intelligence Group, publisher of the industry newspaper Oil Daily.

CNPC will pay PetroKaz's investors $55 per share, for all outstanding common shares. The price represents a 21.1% premium to PetroKaz's August 19 closing price on the New York Stock Exchange, the most recent date on which the shares were traded. CNPC's purchase of PetroKaz, which is based in Calgary, Alberta, still requires approval by the Canadian firm's shareholders. PetroKaz's board of directors has approved the sale of the firm and its shareholders are to vote at a meeting expected to be held in October.

A successful takeover would add to a multibillion-dollar series of deals by China to acquire foreign oil and gas and to develop oil fields in countries as far-flung as Sudan, Venezuela and Australia. The announcement comes three weeks after China's third-largest oil company, CNOOC, withdrew a multibillion-dollar bid for US oil and gas producer Unocal, after opposition by politicians in Congress and other critics who said it might threaten US national security.

Industry sources familiar with the strategy of the Chinese state oil sector said the firms may have put more overseas listed energy companies on their radar screen, such as Britain's BG, some Canadian oil sand producers, and possibly exploration and production firms listed in Australia or London. The takeover of PetroKaz would add closer economic ties to growing strategic co-operation between China and Kazakhstan, which is expected to become one of the world's leading oil producers over the next two decades.

The Toronto and New York-listed company is considered a good geographical fit for CNPC, since the latter has an existing crude oil pipeline linking PetroKaz's main assets in the Central Asian country to its western China refineries.CNPC is China's biggest oil producer and the parent company of PetroChina, whose shares are traded in Hong Kong and New York. PetroKaz is headquartered in Canada's oil patch, but all of its operations are in Kazakhstan. It has been involved in joint ventures there since 1991 and bought a state-owned oil firm, Yuzhneftegaz, in 1996 in the country's first major oil privatisation. The Canadian company's proven oil reserves stand at 550 million barrels. PetroKaz's operations are located in the 31,000 square mile south Turgai basin in south central Kazakhstan. PetroKaz has an interest in 11 fields with land holdings totalling 410,522 acres and owns a 100% interest in an exploration licence surrounding the Kumkol field totalling 341,848 acres.Kazakhstan exports about 800,000 barrels of oil a day.