RIYADH: With the global scramble for energy assets growing, CNOOC, the Chinese state-backed oil giant, has announced buying Canada's Nexen, the Calgary based oil and gas producer, for $15.1 billion.
This is the largest-ever Chinese acquisition of a foreign energy company. With the Nexen Inc. deal, CNOOC will gain assets in the Gulf of Mexico and North Sea for the first time. Nexen says it produced 22,000 barrels of oil equivalent per day in the Gulf in 2011. Besides oil sands, it is also active in exploring for natural gas in shale rock formations. It owns about 300,000 acres of shale-gas blocks in the Horn River Basin in British Columbia.
Another deal announced last week sees Sinopec, or China Petroleum & Chemical Corp., enter the North Sea through its purchase of a 49 per cent stake in Canada’s Talisman's Energy.
Chinese companies have set themselves ambitious targets. Sinopec has a target for overseas production from just under 500,000 barrels per day in 2011 to a million barrels per day by 2015. CNOOC aims to have 30 per cent of its total production come from abroad by 2015, up from 20 per cent in 2010. China National Petroleum Corp. hopes to double overseas production to two million barrels a day by 2015.
Their allure of oil is stronger than ever. Nexen acquisition is significant because of the Chinese interest in acquiring the technological expertise required for complicated deepwater and shale drilling. Besides, it also provides China with new foray into pricing mechanisms.
What's next in China's quest for energy? According to a note by brokerage Sanford Bernstein from March, Chinese oil companies’ big acquisition appetite only really took off after the financial crisis, because they saw a “once in one hundred years opportunity” to take advantage of cheaper assets and reduced competition. Prior to that, deal sizes were much smaller.
In November Bloomberg reported that Marathon Oil was in talks to sell its Angolan offshore operations to Sinopec and other Asian buyers for $800 million. Reports also indicate that Marathon may look to sell 30 per cent of a joint venture in its Gulf of Mexico deepwater assets for $1 billion to Asian buyers as part of the Houston -based company's announced plans of oil asset sales up to $3 billion. In 2009 too, Sinopec and CNOOC bought a 20 per cent stake in a promising Angolan deepwater oil prospects from Marathon for $1.3 billion.
According to Bloomberg data, Chinese oil giants are the second-largest acquirer of oil assets, behind US oil majors, cutting $35.6 billion of acquisitions last year. Notable Chinese deals include Sinopec's November acquisition of a 30 per cent stake in Portuguese energy company Galp Energia's Brazilian subsidiary Petrogal Brasil, for over $5 billion. This included access to the Jupiter and Tupi offshore oil fields — the largest oil finds in the western hemisphere since the 1970s. In October, Sinopec acquired Daylight Energy, which holds 300,000 acres of shale oil and gas drilling assets, for $2.1 billion.
More recently, Sinopec bought a 33per cent interest in five shale ventures owned by Devon Energy for $2.2 billion, giving it access and a drilling partner in prized shale assets like the Tuscaloosa Marine, Niobrara, Mississippian, Ohio Utica and the Michigan Basin shale formations.
In the meantime, Chesapeake Energy is reportedly looking to sell billions in shale assets as a way to meet a $10 billion-plus funding gap this year. Iraq and Kurdistan also remain a hunting ground for China — despite obstacles.
The total acquisitions by Chinese energy firms jumped from less than $2 billion between 2002 and 2003 to nearly $48 billion in 2009 and 2010, the International Energy Agency says.
And apparently the foreseeable glut in North America, domestic resistance to such acquisitions has gone milder — to say the least.
Chinese overseas acquisition strategy has come of age.