China’s oil majors are counting a bundle of mixed blessings this year as they seek to recover their confidence abroad after striking out on the acquisition trail in 2007.
While falling global oil prices have eased pressures caused by domestic retail caps, stocks of their listed arms have fallen sharply.
Meanwhile, the Beijing Olympics have attracted unwelcome attention to their overseas concerns and helped fuel a political debate over the benefits of current and future energy strategies.
None of the seven NOCs (national oil companies) operating abroad – China National Offshore Oil Corporation (CNOOC); China National Petroleum Corporation (CNPC) and its listed arm, PetroChina; Sinopec Group and its listed subsidiary, Sinopec, plus Sinochem and CITIC – recorded upstream transactions abroad last year, according to IHS Herold consultants in New York.
“In 2006, the figure rose to about $9billion in deals. That was the peak, excluding any deals between parent companies and subsidiaries,” says Herold mergers and acquisitions director Chris Sheehan. “However, last year, they didn’t win any bids, although from all the indications they still were actively seeking assets.”
This year’s moves include China’s first Australian buy with Sinopec’s $557million takeover of some of AED Oil’s East Timor Sea assets, and CNOOC’s half share in a subsidiary of Calgary-based Husky Energy for $125million to enable it to join the development of gas and natural gas liquid fields in Indonesia. After spending $465million on Soco International’s Yemen subsidiary in April, Sinochem is now believed to be targeting most of the remainder of the London-based firm’s assets.
Sinopec Group also agreed a deal to buy Tanganyika Oil, a Toronto-listed company with assets in Syria and Egypt, for $1.93billion in September.
“They have certainly re-entered the international market in earnest. So far this year, they have completed just shy of $4billion in transactions,” says Sheehan. “What was significant about Tanganyika was that it was the largest corporate NOC acquisition since CITIC purchased PetroKazakhstan in 2006.”
Analysts say reasons for the year-long lull are unclear, with speculation focusing on greater discernment after a string of disappointing returns on small assets; a wait-and-see approach to a perceived investment bubble, and just a lack of anything the NOCs wanted to buy.
“Some of the Chinese companies seem to want to buy bigger acquisitions. CNPC had amassed a group of little projects, which they found it difficult to manage,” says Erica Downs, fellow at the China Center of Washington’s Brookings Institution.
“It might cause them to be more discerning in that there might be a sense that they don’t want to buy just any block.”
CNOOC signalled its intention to make the most of high oil prices at the start of this year, raising its annual capital expenditure budget by 43.7%, to $5.42billion, and announcing plans to boost deepwater production.
That aim has been bolstered since CNOOC subsidiary China Oilfield Services (COSL) purchased Norway’s Awilco Offshore in September for $2.5billion, creating the world’s eighth largest drilling fleet with 34 drilling rigs, including those under construction. Units of the Awilco fleet, which is younger and better able to operate in deep water than COSL’s 15 rigs, are thought to be destined for Chinese waters sooner or later.