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China Oil Investing

Brian Hicks

Written By Brian Hicks

Posted August 7, 2013

In a clear sign of China’s ambitions, China National Petroleum Corp. has already spent more capital on energy assets thus far in the year than any other producer in the world. Now, it appears CNPC is targeting oil and gas fields under Exxon Mobil (NYSE: XOM) and Rosneft (MM: ROSN), the Russian giant.

oil rig picBloomberg reports that CNPC has bought up more than $9 billion in assets so far in 2013. Another $4 billion is on the table, and it’s all part of the company’s target of doubling international production by 2015.

To put this in perspective, recall that both the Sinopec Group and CNOOC Ltd. (NYSE: CEO) had previously outdone CNPC by a total of $50 billion in overseas deals in the five years ending 2012.

From Bloomberg:

“CNPC’s skill set makes it a good fit for many developed onshore oilfields in central Asia, the Middle East and South America,” Neil Beveridge, a Hong Kong-based oil and gas analyst at Bernstein, said by phone. “CNPC’s state-owned background is more of a bonus rather than a burden when it seeks acquisitions in those regions.”

Beginning with the Daqing field (in Heilongjiang, northeastern China) in 1959, CNPC has now spread its operations over Syria, Sudan, Iraq, and a few other Central Asian nations. By 2015, the company hopes to achieve production volumes of 200 million tons overseas; production from non-Chinese fields alone could account for 60 percent of the total by the end of this decade. Last year, that proportion was 37 percent.

China remains the world’s largest consumer of energy, and that isn’t likely to change anytime soon. Bloomberg’s analyses indicate that the nation has already embarked on about $108 billion in overseas oil and gas purchases through the year 2012—and the lead positions were taken by CNPC, Sinopec, and CNOOC.

This year alone, CNPC has achieved a $4.2 billion purchase of a Rovuma field stake in Mozambique, and there’s another stake in Kazakhstan in the offing—reputedly worth approximately $5 billion.

Moreover, CNPC hopes to buy Colombian and Peruvian assets from Petroleo Brasileiro SA worth about $2 billion. And finally, CNPC is eyeing Barra Energia Petroleo e Gas, a Brazilian startup that’s worth about $2 billion.

Given that CNPC already has a foothold in Iraq, it’s quite likely that the company may snag Exxon’s 60 percent stake in the West Qurna-1 field located in southeastern Iraq. As of last October, CNPC was pumping out 1.65 million barrels of oil per day from its Iraqi assets.

Exxon’s asset in question happens to be located near the Rumaila field, which is overseen by CNPC and BP Plc (NYSE: BP) jointly. Exxon reportedly estimates that the field could crank out 600,000 barrels a day by 2014.

Meanwhile, CNPC has been moving ahead with Rosneft. The two entered into a $270 billion oil-supply agreement last June. The deal is for 25 years, and Rosneft will supply 360 million metric tons of crude to China.

CNPC’s International Activity

CNPC is having a very good year overall. Reuters reports that the company’s overseas oil and gas equity production is up 6.5 percent over the first half of this year, and output in Kazakhstan and Iraq especially has gone well over target thresholds.

It appears that over that period, non-Chinese CNPC assets’ production rose 8.2 percent, touching 2.2 million barrels per day, with equity output touching 1.09 million bpd of oil equivalent.

Key to the Kazakh and Iraqi improvements were overhauls undertaken to management and general improvements in efficiencies. CNPC hit a particularly high note in Iraq, becoming the first foreign company to ink an oil-service agreement after the Saddam Hussein years.

As for the Russian deal, it’s simply one of the biggest in the history of the oil and gas sector. CNPC will pay about $70 billion upfront in cash. But that isn’t quite the limit of the China-Russia entanglement; CNPC is also set to buy up 20 percent in the Yamal LNG project in the Russian Arctic area. Interestingly, France’s Total SA (NYSE: TOT) already has a 20 percent stake in the same project, and Novatek (MM: NVTK) controls the remainder.

I needn’t reiterate what this whole article has been pointing at; there are plenty of reasons to keep a close eye on China’s energy investments right now. Their energy firms are on a buying and deal-making spree as China prepares for future growth. You’d do well to get in on the action early.


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