The Chinese are Coming, With Bags of Cash

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abarrelfull wrote on 26 Feb 2013 09:29
Tags: canada chesapeake cnooc deals nexen sinopec usa

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Back in 2005, CNOOC, a major state owned Chinese oil company made a bid to acquire Unocal, a second tier US oil company. Amid protectionism, politics and xenophobia, the bid failed and Unocal was instead absorbed into Chevron.

CNOOC's plan was simple. China's need for oil and gas is growing, so the company needs to acquire reserves to meet that demand.

The world has changed a lot since that failed bid, not least China's rising power has been accepted, if not embraced by Western countries and companies eager to access a little Renminbi. This has meant that Chinese takeovers are more likely to be judged on their merits rather than anything else.

Today the USA and Canada have more to offer than just reserves as well, they have technology, a factor that is driving interest in non conventional resources, not just by Chinese companies. So we can expect that the current flurry of activity is likely to continue. It will also have a big impact on the way the sector develops, as large Asian companies will have different priorities that their Western counterparts.

In Canada, Nexen has announced the completion of an acquisition by CNOOC, Unocal's jilted suitor. Nexen offers expertise in oil sands and shale gas, as well as conventional oil and gas. Canada has traditionally sold all of its oil exports to the USA. But if a Chinese company is a major player in Alberta then it will want to see as much oil as possible flow to the Pacific Ocean, so the Northern Gateway Oil Pipeline Project and Trans Mountain Pipeline Expansion Project now have a very strong champion. Given the determined opposition to the Keystone XL Pipeline Project this could be significant.

South of the border, CNOOC's compatriot Sinopec has formed a joint venture with Chesapeake Energy, in the Mississippi Lime. A deal only 1/15th the size of the Nexen one, this is about fracking. However, it is also probably about LNG. Just a year ago, Sinopec closed a deal worth double this with Devon energy, again for a share of unconventional gas resources. These will probably not be the last.

So just as the Nexen deal creates a bigger lobby for a particular export route in Canada, the Chesapeake deal ups the pressure to allow large scale LNG exports. A factor that needs to be considered by those opposed to either of these issues, is that Billions of dollars of Chinese investments could depend on the decisions taken. Given the huge trade surplus that China has with the USA, having something valuable that they want to buy is not to be ignored.