CNOOC Rolls out Exploration Welcome Mat 中海油向外国油企开放26块合作区块
In what looks like a brilliant tactical move, oil major CNOOC (HKEx: 883; NYSE: CEO) has just issued a massive new invitation for foreign companies to help it develop oil fields off the China coast, a move that should help both the company and Beijing to advance some of their most recent initiatives. In CNOOC’s case, the latest offering of 26 offshore blocks for co-development could help to show that it isn’t only interested in buying assets in other countries but is also prepared to offer assets in its home China market to foreign oil majors. On a more geopolitical level, the offering of so many new blocks for development is likely to send the signal that China wants to move aggressively to settle some of the noisy territorial disputes with many of its Asian neighbors, many of which involve disputed islands in ocean areas that could contain valuable new oil deposits.
Let’s look at the news, which has Chinese media reporting that CNOOC’s offer of the 26 new blocks represents a “massive expansion” of its program to develop oil deposits through ventures with foreign partners. (English article) The reports cite an expert saying the new offering is CNOOC’s largest ever, and follows its offer of nine blocks in the South China Sea in June.
As I said above, this plan looks quite smart from a strategic perspective since it will help both CNOOC and Beijing to achieve many of their goals. From a purely economic standpoint, the opening of so many new blocks for development could help to significantly boost CNOOC’s output over the next 5 years, helping to not only raise its own output but also to achieve Beijing’s goal of making China more energy self-sufficient.
As part of the self-sufficiency drive, CNOOC and rivals PetroChina (HKEx: 857; Shanghai: 601857; NYSE: PTR) and Sinopec (HKEx: 386 Shanghai: 600028 NYSE: SNP) are all embarking on aggressive global acquisition sprees to meet Beijing’s energy objectives, with CNOOC itself now pursing a controversial $15 billion purchase of Canadian oil giant Nexen (Toronto: NXY). (previous post)
Many believed that pursuit of such deals in sensitive Western markets could ultimately fail, as local politicians were likely to oppose such purchases by raising national security concerns. So this opening of such a big area of China’s offshore land to foreign oil firms could help to quiet some of that potential noise, since politicians are less likely to be vocal if oil companies from their own home markets are getting similar access to the China market.
From a geopolitical perspective, this move also looks like a smart one by Beijing, sending a signal to many of its Asian neighbors that it wants to settle many of the territorial disputes with them that have grown louder over the last year. Many believe the growing noise is at least partly due to the fact that many of the disputed areas may contain big oil deposits, and clearly Beijing and the other countries are eager to start trying to tap those resources.
I can’t tell from the latest reports if any of the new blocks are in disputed areas, but my guess is that they aren’t, at least for right now. But the opening of so much territory to exploration at least shows that Beijing wants to move ahead and settle the disputes so that new blocks in the affected areas can also be open for exploration in the not-too-distant future. At the end of the day, this new move should benefit everyone, providing new business for foreign oil companies, helping CNOOC in its overseas expansion and perhaps pressuring nations to stop their angry rhetoric and sit down to seriously look for compromises to solve their territorial disputes.
Bottom line: CNOOC’s opening of major new offshore areas for joint development with foreign firms looks like a smart move to help the company and Beijing achieve many of their goals.
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