Replies to post #3958 on The Rising Influence of Rising Affluence

[DewDiligence]

China Grabs for Energy Softly

http://online.wsj.com/article/SB10001424052970203513604577140081621898026.html

›JANUARY 5, 2012
By TOM ORLIK

China's oil majors are notching up big purchases by steering clear of controversy.

Sinopec's $2.5 billion deal to acquire an interest in Devon Energy's shale fields, and PetroChina's $666 million purchase of Canadian oil sands from Athabasca Oil Sands, have started the year with a bang. It's all a far cry from 2005, when China National Offshore Oil Co.'s failed bid for Unocal threatened to stop China's outbound energy acquisition in its tracks.

The latest wave of acquisitions by China's national oil companies shows they have learned from past missteps. Where Cnooc's $18 billion bid was an attempt to swallow Unocal whole, the national oil companies now target minority stakes and joint ventures that are less likely to ring alarm bells in Western capitals. Sinopec's latest deal is typical in this respect, giving it a one-third share of Devon's shale fields.

Targeting unconventional assets also helps. [This is not saying much insofar as “unconventional” is so broadly defined.]. The image of China's state-owned giants siphoning off the crude from American wells raised fears about selling the farm to a strategic competitor. Squeezing the oil out of sands in Canada—as PetroChina will do following its purchase from Athabasca—may cause a stir in Alberta. But compared with the Unocal bid, China's new wave of purchases is less threatening.

Chinese oil companies' deep pockets and long time horizon are also important, enabling them to target deals and pay prices that would scare off their competitors. With natural-gas prices close to their 2009 lows, the short-term benefits of exploiting Devon's fields look unappealing. But Laban Yu, oil and gas analyst at Jefferies, says China's oil companies can take a more strategic view. [As XOM could in its 2009 acquisition of XTO.]

A softly, softly approach has worked to China's advantage. Data from Dealogic shows the national oil companies notched up acquisitions of $20.2 billion in 2011, the third bumper year in a row. With weak energy prices set to persist into 2012, expect more deals to come China's way.‹