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Page added on August 30, 2007

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China gambles on Somalia’s unseen oil

CNOOC has acquired a reputation for risk-taking – a reflection of the fact it is serving China’s strategic need for oil rather than commercial objectives.

CNOOC’s willingness to strike an oil deal with the fragile government of Somalia, which has been a failed state for more than a decade, has provided stark evidence of China’s willingness to brave terrain that western oil majors deem too treacherous.
The state-owned Chinese oil giant has signed a production-sharing deal with the transitional federal government in the east African country, which ranks as a high-risk frontier even in an industry well accustomed to dangerous environments.


In doing so, CNOOC and its smaller partner, China International Oil and Gas, are gambling on three points. First, that the interim government has the authority to make such deals and will stay in power. Second, that violence stemming from perennial inter-clan conflicts and more recently Islamist extremism will not derail its work. Third – and most fundamentally – that the country has some oil worth extracting.

Mr O’Connor, chairman of Benchmark Oil and Gas, says: “Big oil companies are loath to go into dodgy areas where they don’t have good contractual relationships. But the Chinese are taking the view, ‘Let’s just do it and deal with the consequences later.’ It’s buccaneering.”


CNOOC has acquired a reputation for risk-taking – a reflection of the fact it is ultimately serving China’s strategic need for oil rather than purely commercial objectives.


On the country’s hydro-carbon potential, Mr O’Connor says: “There has been enough drilling that there is a modicum of knowledge about the geology and it’s favourable. One would expect that whatever you find in the southern part of the Arabian plate you’d find in Somalia.”

Financial Times Deutschland



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