China taps US again for energy after 5 year hiatus

CNOOC is back tapping the US for the country’s energy needs after a five-year hiatus, and again the latest deal has generated a lot of heated discussions in the US.

Remember the audacious $18.5 billion all-cash bid to acquire Unocal Oil in 2005? The deal ultimately fell through in the face of intense opposition from US politicians.

CNOOC’s attempt to buy Unocal was hampered from the start by fierce opposition in Washington, with many in Congress questioning the wisdom of allowing a company 70%-owned by the Chinese government to buy a US oil and gas producer amid record high crude and gasoline prices.

CNOOC eventually dropped its bid and Unocal was bought by Chevron in August 2005 at $17.8 billion.

Five years forward, and CNOOC is back in the US for energy resources, after it announced a deal to buy a one-third stake in Chesapeake Energy’s Eagle Ford Shale project in southern Texas.

The Chinese company will pay $1.08 billion in cash and also to fund 75% of Chesapeake’s share of drilling and completion costs until an additional $1.08 billion has been paid, which is expected to occur by the end of 2012.

The word on the street was that India’s Reliance Industries was also in the race to acquire Chesapeake. But the Indian conglomerate was seeking to buy over the entire company, which would no doubt have raised some ires from Washington.

Reliance and Chesapeake have declined to comment on any talks or the status of any negotiations.

The Chinese company instead had sought to buy a minority stake, which analysts say would have appealed to Chesapeake as the US company retains ownership and receives much-needed funds to fuel future investments.

In a report published in June, consultancy Wood Mackenzie said Chinese national oil companies — PetroChina, Sinopec and CNOOC — have been intensely active over the past 12 months and taking a much more aggressive stance on mergers and acquisitions.

In a report dated June 10, the IEA estimated that the Chinese majors spent a total of $29 billion from January 2009 to April 2010 acquiring oil and gas assets.

With China’s energy demand still rising and its own oil production relatively mature, the country is likely to remain reliant on the international market to meet its needs. Most of this oil is likely to come from a relatively small number of countries, the IEA said.

Like it or not, the Chinese have turned wiser and learned from the Unocal experience, and they will continue to shake the world with mergers and acquisitions.

Platts