Dragon's hunger to devour oil firms is good news for Gulf

Chinese state corporations are on a buying spree of Canadian oil companies.

The Chinese National Offshore Oil Corporation made a US$15.1 billion bid for Nexen of Canada. Nelson Ching / Bloomberg News

Last Monday saw the ravenous Chinese dragon devour two Canadian oil companies.

The acquisitions make the Chinese state corporations concerned more attractive partners for the Arabian Gulf. But they also show the increasing opportunities in new hydrocarbon resources outside the Middle East.

The Chinese National Offshore Oil Corporation's (CNOOC) US$15.1 billion (Dh55.46bn) bid for Nexen of Canada and China Petrochemical Corporation's (Sinopec) $1.5bn purchase of a 49 per cent stake in Talisman Energy's North Sea operations are potentially transformational moves for two of China's three largest state oil firms.

CNOOC's acquisition follows its failed bid for the US company Unocal in 2005, which, reminiscent of the DP World issue, was scuppered by meddlesome American politicians. Unocal was instead taken over for a lower price by the supermajor Chevron.

This time, CNOOC appears to have planned its campaign meticulously, wooing Canadian politicians, promising to preserve jobs and list its own shares in Toronto and submitting voluntarily to a US foreign investment review.

Nexen brings CNOOC some highly strategic assets: a position in Alberta's oil sands, the world's largest oil deposit; shale gas in British Columbia that could be exported to China; deep-water licences in the Gulf of Mexico and Nigeria; and Buzzard, the UK's largest producing oilfield and a key component of setting the global benchmark Brent oil price.

Sinopec's deal is less high-profile but continues its progress under its modernising and aggressive chairman Fu Chengyu (who was the chief executive of CNOOC during the Unocal deal). In 2009, he bought Addax, which operated in West Africa and the Kurdish region of Iraq; more recently, he entered shale gas assets in the United States.

The largest Chinese state oil firm, China National Petroleum Corporation (CNPC, whose listed subsidiary is PetroChina) was not involved in these deals but it has been active in buying shale assets, too - paying about $2.65bn for joint ventures in the US and Canada this year. These deals were done on a commercial basis. Even though CNOOC is offering a 60 per cent premium to Nexen's market value, recent sharp falls in the share prices of listed oil companies make valuations attractive.

The consultancy Wood Mackenzie evaluated Nexen's assets as worth $15.2bn at an oil price of $85 per barrel - giving CNOOC plenty of room to add value through exploration and learning from Nexen's technical capabilities.

The advances this year made by the three Chinese state oil corporations show their goal of competing with the western supermajors - Shell, ExxonMobil, Chevron, Total and BP - on an even footing of technology, not just their traditional advantages of low costs, deep pockets and the backing of Beijing. But effective use of technology is more about corporate mindset than the possession of widgets.

Sinopec's digestion of Addax was surprisingly slow and incomplete. It is still to be seen how quickly CNOOC will move to make Nexen an integral part of its operations, especially given the commitments made to the Canadian government.

Expertise in extracting oil and gas from shales through hydraulic fracturing, or fracking, could be very significant to the Gulf, given gas shortages here. Skills in operating mature fields in shallow water are also relevant.

This makes CNOOC and Sinopec more competitive for new Middle East projects; between them and CNPC, they are already present in Iraq, Qatar, Saudi Arabia, Oman and Iran.

The next prize is the renewal of the big concessions in Abu Dhabi, starting in 2014. CNPC may drill in the emirate as early as next year under its cooperation agreement with the Abu Dhabi National Oil Company.

CNOOC's and Sinopec's deals are thus good news for the Gulf producers. But they are also a reminder that, in this era of unconventional oil and gas, even China, with its huge appetite for energy, has other options.

Robin Mills is the head of consulting at Manaar Energy and the author of The Myth of the Oil Crisis and Capturing Carbon