China’s oil companies arrive in the UK North Sea

This is the largest foreign acquisition by any Chinese company and shows that CNOOC has learnt from its failed bid for Unocal in 2005. The addition of Nexen’s assets gives CNOOC a strong position in western Canada’s oil sands as well as making it the second largest oil producer in the United Kingdom North Sea.


CNOOC is a much smaller company than the two other major Chinese national oil companies (NOCs), CNPC/PetroChina and Sinopec. It is also much less burdened with non-commercial obligations and has 30 years’ experience of working with foreign oil companies. For these reasons it is seen as the most professional, commercially-oriented and dynamic of these three companies. CNOOC is also much smaller than international giants like Exxon, Shell and BP, and even smaller than ChevronTexaco and ConocoPhillips. Rather, it resembles the US independent Apache Corporation and is slightly bigger than the UK’s BG. In the league of Asian NOCs, it lies between the smaller ONGC of India and the larger Petronas of Malaysia, though it has much easier access to capital than all its non-Chinese rivals. 


CNOOC’s first overseas investment was in Indonesia, in the mid-1990s. South-east Asia remained the company’s regional focus for a decade. Its early attempts to diversify geographically met with setbacks. Its bid with Sinopec, in 2003, to buy BG’s share of the giant Kashagan field in Kazakhstan was blocked by BG’s partners who invoked their pre-emption rights. Two years later the US Congress prevented CNOOC from buying Unocal.  Despite these failures, CNOOC used its participation in China’s first LNG plants to gain a foothold in Australia’s Northwest Shelf gas province.


Since 2009, CNOOC has taken advantage of its cash reserves, its low cost of capital and the global financial crisis to go on a spending spree, as have the other Chinese NOCs. Whilst Iraq and Iran have been important target countries, the major focus has been North and South America. CNOOC acquired assets in the US Gulf of Mexico, in Alaska and in Trinidad and Tobago. But the most significant moves in the context of the recent Nexen acquisition were those involving unconventional oil and gas plays in the USA and western Canada. CNOOC bought into two US shale oil and gas projects, Eagle Ford in Texas and Niobrara in Colorado and Wyoming, in 2010 and 2011 respectively. In 2011, the company became a partner of Nexen in the Long Lake oil sands project in Alberta when it acquired OPTI Canada. This last move placed CNOOC in an ideal position to assess Nexen as a take-over target.


Nexen is one quarter of the size of CNOOC Ltd. Its main short-term value lies in the North Sea which provides 43% of its total oil and gas production. The long-term value lies in Canada where the Athabasca oil sands account for 32% of its proven reserves and 69% of its probable reserves. Nexen is also involved in shale gas in Western Canada. Other smaller assets lie in the US Gulf of Mexico, Yemen, Nigeria, Poland and Colombia.


CNOOC has been much more careful in launching this bid than when it tried to buy Unocal. Not only has it been a partner with Nexen, but it has also spent considerable effort lobbying Canadian officials in the federal and Alberta governments. In addition the company has been helped by the stated desire of Canada’s Prime Minister to sell more oil to China, partly in response to US dithering over the construction of the Keystone pipeline to carry growing Canadian oil exports to the Gulf Coast.


China’s move into the North Sea was reinforced by Sinopec’s purchase of 49% of Talisman’s UK assets for US $ 1.5 billion at the end of July 2012. Although the North Sea is no longer the technological frontier it was in the 1970s, it is a place where the latest technologies for enhancing oil recovery at low cost continue to be tested. More important for both CNOOC and Sinopec is the fact that these North Sea assets will significantly boost their production in the short-term. In contrast, PetroChina’s first major investment in north-west Europe was the purchase of 50% of the European refining company, Ineos, in 2011 in order enhanced its refining and trading position in the region.

It is likely that CNOOC’s acquisition will be approved in both Canada and the United Kingdom, as will Sinopec’s purchase of Talisman’s assets in North Sea, for the companies bring much needed investment to these oil provinces. That beings said, concerns over Chinese involvement in an important natural resource may delay approval in Canada. No such concerns seem to exist in the United Kingdom where the priority is the maintenance of oil production and employment.

All three major Chinese NOCs are likely to continue their expansion in Europe and the America’s, especially in exploration and production. Given China’s plans for promoting the exploitation of domestic unconventional hydrocarbons and deep water fields, much of this overseas investment will be directed at the technological frontiers.

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