China Oil Majors Step Into Troubled Waters 中海油卷入南中国海争端
The latest controversy involving oil exploration giant CNOOC (HKEx: 883; NYSE: CEO) is once again shining a spotlight on why these Chinese government-controlled oil majors remain a risky bet not only due to exposure to volatile oil markets, but also because of their role as policy tools of Beijing. CNOOC and peers Sinopec (HKEx: 386; Shanghai: 600028; NYSE: SNP) and PetroChina (HKEx: 857; Shanghai: 601857; NYSE: PTR) are accustomed to having to heed Beijing orders to invest in more expensive unconventional fossil fuels like shale oil (previous post), which already carry risks due to their higher development costs. Now it seems these 3 are also becoming policy tools of Beijing in its determination to exert its rights to disputed waters in the South China Sea also claimed by Vietnam. Foreign media are reporting that Vietnam’s foreign ministry has said that CNOOC’s recent moves to develop oil resources in some of those waters violate its territory, and has asked China to cease those activities. (English article) Diplomatically speaking, this kind of move represents a dangerous escalation of this territorial dispute by bringing in a commercial element. From CNOOC’s perspective, this development is also quite troubling as the company is being clearly used as a tool of Beijing to undertake a project that most purely commercial companies would never even consider due to the very real prospects for military conflict. If CNOOC really goes ahead and starts to explore for oil in this area, there’s the very real prospect that it could see its ships and other exploration equipment come under attack from Vietnam, potentially resulting in major losses and turning up the heat in this ongoing territorial conflict. Almost equally bad would be the possibility that CNOOC actually finds oil, which would automatically raise the stakes in this conflict due to the discovery of a valuable new resource in the area. I don’t hold strong views on this particular conflict, which is really a diplomatic matter for China and Vietnam to resolve. But for China to bring one of its major publicly-traded companies into the middle of the conflict is highly irresponsible, as it creates a huge new risk for CNOOC shareholders that no truly commercial company would ever want to take. Then again, shareholders in any of China’s 3 oil majors should be accustomed to shouldering this kind of risk as all are frequently ordered by Beijing to invest in areas with questionable chances of success. But it’s one thing to force a company to develop a difficult new resource, and quite another to ask it to put itself in the middle of a political spat that could easily result in military conflict, endangering not only property but also human lives. If Beijing continues in this direction, investors could be well advised to sell CNOOC and PetroChina shares, as both could easily end up suffering major damage as they become pawns in Beijing’s territorial disputes with its neighbors.
Bottom line: Beijing’s use of CNOOC to exert territorial claims over disputed waters with Vietnam is a highly irresponsible move that puts both the company and its shareholders at unnecessary risk.
Related postings 相关文章:
◙ Stumbling CNOOC Replaces Chief Executive 中海油换将李凡荣接棒CEO
◙ Alternate Fossil Fuels: China’s Newest White Elephant 过度追求替代性化石燃料或给中国留下大量沉重“鸡肋”
◙ 2012: The Year of China Resource M&A? 2012：中国企业的资源并购年？
