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SINGAPORE: CNOOC’s decision to abandon its $18.5 billion bid for Unocal Corporation has dealt a blow to China’s ambitions but is unlikely to halt the country’s drive to secure natural resources abroad. Chinese state oil firms, driven by surging demand from the world’s second-largest energy market, are set to make more attempts to buy foreign assets, management expertise and technology, just as Japan Inc. did in the 1980s.
“Why would a setback with regard to a single bid cause China to alter its energy acquisition policy in any meaningful way?” said John Doran, chief executive of Australia-based oil explorer ROC Oil Co Ltd., before news that CNOOC had thrown in the towel.
“You’d have to study Chinese history for a very long time before finding an example of a single setback deflecting this determined nation from its preferred direction,” said Doran, who has worked for oil majors in Iran, Norway and elsewhere.
China imports about 40 per cent of its daily oil consumption of 6 million barrels per day (bpd). The imports, similar to the 2.5 million bpd production of Kuwait, are set to increase in the coming years to fuel the world’s fastest-growing major economy.
For now, politics and heated auctions for increasingly expensive hydrocarbon assets are the main stumbling blocks.
STRING OF FAILURES: CNOOC’s aborted plan to take over Unocal added to a string of failures in China’s attempts to buy foreign natural resources assets from Thailand to Russia.
CNOOC, China’s third-largest oil group, targeted Unocal because most of the US company’s assets are natural gas fields in Asia, which suits its growth strategy.
It could start searching for new targets soon, analysts and bankers say, adding that Royal Dutch Shell’s stake in Woodside Petroleum could be a target, although the high valuation of the Australian producer is a barrier.
PetroChina, the country’s dominant oil and gas producer, said in June it was eyeing 10 potential overseas acquisitions after setting up a multi-billion dollar joint venture to push for overseas expansion.
The joint venture, which owns oil fields in 10 countries — mainly developing nations — is in the running for more than $1 billion of oil assets in Ecuador auctioned by EnCana, North America’s biggest independent hydrocarbon producer.
The parent company of PetroChina is also looking to bid for $3 billion Canadian oil company PetroKazakhstan Inc. with assets in Central Asia.
CANNOT GIVE UP: “If the Chinese companies want to be players in the world market, they cannot give up on acquisitions,” said David Anderson, a former senior Asia-based energy-sector investment banker, before the CNOOC news.
The failed Unocal deal serves as a lesson on political risks in overseas deals for CNOOC and has provided it with invaluable experience, according to people familiar with the company’s strategy. Chinese companies have had little experience in buying publicly-traded foreign firms.
CNOOC underestimated the US political opposition. The US Congress, long dissatisfied with China’s trade surplus, rampant piracy and its stance on North Korea, delayed a CNOOC deal, forcing Unocal’s board to pick rival bidder Chevron Corporation’s lower bid.
CNOOC, whose offer was backed by $7 billion subsidized loans, could have raised its offer to lure Unocal shareholders. But it did not do so partly because of worries about overpaying — a sign of increased sophistication in China’s bidding tactics. —Reuters
