Monday, October 19, 2009

China is buying African oil interests.

China May Stumble in Race With Rivals for African Oil (Update3)

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By Carli Lourens and John Duce

Oct. 19 (Bloomberg) -- China’s plans to buy into oil fields in Africa may suffer a third setback in as many months if Exxon Mobil Corp. succeeds in snapping up drilling rights in Ghana, one of the continent’s newest oil nations.

Closely held Kosmos Energy LLC said last week it agreed to sell its stake in Ghana’s Jubilee oil field to Exxon Mobil, which may thwart ambitions in the same area by Cnooc Ltd., the listed arm of China National Offshore Oil Corp. While Ghanaian government officials say the Exxon deal, worth about $4 billion according to a person familiar with the transaction, has not been officially approved, Chinese explorers have hit hurdles since July on other oil deals in Angola and Libya.

At stake is China’s ability to secure fuel for its economy, which expanded 7.9 percent in the second quarter from a year earlier. China’s oil companies in Africa are diversifying from construction projects as a means to gain access to mineral resources, and turning to strategies that include Western deal structures and local banks. In the process, they are competing with some of the world’s biggest oil companies in the U.S. and Europe also seeking resources in the region.

“The Chinese are frustrated that they’re not doing more deals,” said Kobus van der Wath, group managing director of The Beijing Axis, which advises Chinese companies expanding overseas. “The interest, intent and general capacity to do deals is far greater.” He estimates non-financial investments in Africa may climb as high as $3 billion this year, double the 2008 level.

Secure Supplies

Since Chinese Premier Wen Jiabao visited seven African nations in 2006 and promised to double aid, establish a $5 billion investment fund and provide $3 billion in loans, China’s energy companies have announced plans to spend at least $16 billion on oil and gas fields on the continent.

“Chinese oil companies are very keen to gain stakes in large oilfields that are nearing production or are in the development stages,” said Thomas Grieder, a London-based analyst at market intelligence firm IHS Global Insight. “The government is keen to secure long-term supplies.”

China’s economy will need more than 11 million barrels of oil a day in five years, 38 percent more than last year, according to Paul Ting, president of New Jersey-based Paul Ting Energy Vision LLC, a Chinese oil and gas consultant.

On Aug. 27, Cnooc said it will step up exploration and acquisitions to meet fuel demand in China. Chairman Fu Chengyu said the company changed its overseas strategy to focus on taking stakes in ventures rather than buying out companies after failing to acquire Unocal Corp. of the U.S. in 2005.

Cnooc shares in Hong Kong more than doubled over the past year and closed at HK$12.42 today.

Cnooc-Ghana Talks

On Oct. 14, Ghana’s Energy Ministry spokesman Michael Sarpong said Cnooc was in talks with Ghanaian officials, without giving details.

His comment followed a Wall Street Journal report on Oct. 12 that said Cnooc was negotiating with Ghana National Petroleum Corp. to bid for Kosmos’s stake in Jubilee. Xiao Zongwei, a spokesman for Cnooc, declined to comment on the article, which cited unidentified people.

Ghana National Petroleum, known as GNPC, is “still in discussions” with Kosmos to acquire the stake, Thomas Manu, its director of exploration and production, said Oct. 13. “GNPC will acquire the stake and then consider proposals from other companies” to take on as partners, he said.

Further south off Angola, Cnooc’s $1.3 billion bid to buy 20 percent of an oil block from Marathon Oil Corp. may be held up after Marathon said the Angolan government and other partners have rights of first refusal. That bid was announced in July with China Petroleum & Chemical Corp., known as Sinopec.

Sinopec in Hong Kong rose 23 percent in the past year and closed at HK$7.06 today.

‘Intense’ Competition

The competition for overseas energy assets is “intense,” Su Shulin, President of Sinopec Group, said in an interview in Beijing Oct. 15. “There are opportunities in overseas acquisitions, but there are also many people looking at them.”

Cnooc’s Xiao declined to comment on reports the deal to sell Marathon Oil’s stake to Cnooc and Sinopec has been delayed by Angola’s government. Huang Wensheng, spokesman for Sinopec, said the company has no information on whether Angola has blocked the deal and declined to comment further.

Separately, Libya vetoed a C$499 million ($482 million) bid last month by China National Petroleum Corp., the Asian nation’s biggest oil and gas company, for Calgary-based Verenex Energy Inc., which has stakes in the North African country.

China National Offshore Oil expressed interest in Tullow Oil Plc’s oil finds in Uganda as the U.K. explorer with the most licenses in Africa started compiling a short list of potential bidders for a stake in a project in the country.

Lake Albert

Tullow said Sept. 17 the Ngassa oil field in Uganda may be the largest discovery in the Lake Albert Rift Basin. The Chinese explorer is interested in investing in the project, according to Brian Glover, Tullow Uganda’s country manager.

Tullow said about 10 companies had pre-qualified to work on the field. He was commenting after Dow Jones on Oct. 2 cited an unnamed official at Ugandan President Yoweri Museveni’s office saying Cnooc had held talks with Uganda on joining a project. Tamale Mirundi, a spokesman for Museveni, would neither confirm nor deny talks, while Cnooc’s Xiao declined to comment.

In West Africa, China Petrochemical Corp., or Sinopec Group, the nation’s second-largest oil company, acquired Swiss- based Addax Petroleum Corp. this year for C$8.3 billion ($8 billion), adding oil reserves in Nigeria, Cameroon and Gabon.

China National Offshore Oil is also among companies in talks to buy 16 production licenses in the West African nation, Olusegun Adeniyi, a spokesman for Nigeria’s President Umaru Yar’Adua, said in an e-mail on Sept. 29.

Surging Investment

Chinese direct investment in Africa surged 81 percent in the first half to $552 million from a year earlier, according to an Aug. 18 report by China’s Ministry of Commerce.

In Nigeria, Africa’s biggest oil producer, China’s strategy has evolved and oil-for-infrastructure deals are “dead,” Gregory Mthembu-Salter wrote in a September research paper for the South African Institute of International Affairs.

“The model has been replaced by one in which Chinese energy companies gain access to the country’s oil resources by buying stakes in established companies.”

To contact the reporters on this story: Carli Lourens in Johannesburg at; John Duce in Hong Kong at

Last Updated: October 19, 2009 08:51 EDT

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