The announcement that CNOOC and Sinopec are to invest more than £10billion in Nexen and in Talisman’s North Sea business can be seen as a vindication of the oil and gas industry’s lobbying for a consistent fiscal regime.
North Sea production companies rightly took umbrage at Westminster’s lightning windfall tax raid in the 2011 Budget and, having steadied the ship, we now have a new group of foreign investors who will expect continued clarity and stability.
The evidence suggests that, in regions where Chinese firms have previously invested, they are happy to put more capital in to achieve maximum output.
The UK continental shelf (UKCS) is in a phase where we need significant capital investment from ambitious owners and, to that extent, this development is good news.
On top of the obvious benefits of enhanced production activity, this will have many benefits for North Sea oil services companies.
Over time, doors will be opened to firms who can supply expertise and services in other countries where the Chinese have invested. The Asia-Pacific region naturally comes to mind where China is a dominant player, but recent investments by Chinese companies in the emerging African energy sector should provide new opportunities once North Sea providers have proved their credentials.
There are a number of Aberdeen-based firms who are already well advanced with setting up a framework, both physical and legal, for doing business in China and these announcements will be music to their ears, as they are in an excellent position to build on and strengthen existing relationships. One obvious challenge will be finding the right cultural approach in dealing with Chinese owners, but it is encouraging the initial statements say they are looking to work with experienced management and will try to retain the existing management teams. The incumbents need to understand what the drivers are in the respective businesses and make sure everyone works in a collaborative manner to meet investor expectations. It could mean that existing operating methods and agendas will need to be revisited to ensure the needs and requirements of all stakeholders are accommodated as best they can be.
It is a big change and the co-ordinated announcement of the CNOOC and Sinopec deals is not just symbolic, but sends out a signal that the UK North Sea ownership jigsaw can expect more of the same. Once we acknowledge that we do not have a nationalised oil and gas industry, it is a case of working co-operatively with a variety of international investors to benefit all. Currently we have varying degrees of UKCS production owned by companies from Norway, Denmark, France, Germany, North America, South Korea and the Middle East and this week’s events are the next evolutionary step of the North Sea story. We need to embrace it and learn to work with all of the players in order that we can maximise extraction from the UKCS while simultaneously looking for supply chain opportunities both at home and abroad.
Businesses which are going to develop and prosper will be the ones which work out how they can help the Chinese as investors and at the same time progress their own objectives.
We recently opened an office in Munich and one of the strategic reasons behind this was because of the very strong business links between Germany and China, in particular in energy, infrastructure and advanced manufacturing technologies. This is in addition to having a presence in Beijing, Shanghai, Singapore and Hong Kong, and I expect other UK firms won’t be long in joining us as they seek to take advantage of the emerging North Sea-China alliances.
Bob Ruddiman is head of energy and natural resources at Pinsent Masons
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