China is stepping up its efforts to secure access to more of the world's oil by teaming its China National Offshore Oil Corp. (NYSE ADR: CEO) with the Ghana National Petroleum Corp. (GNPC) to bid for a stake in a giant oil find off West Africa.
The bid will compete against Exxon Mobil Corp.'s (NYSE: XOM), $4 billion offer for 23.5% of the discovery, known as Jubilee. The new oil field is thought to hold more than 1.8 billion barrels of light, sweet crude oil, the world's most sought-after category, The Wall Street Journal reported today (Monday).
The announcement that the two are in advanced talks to put together a bid came as a surprise after Dallas-based Kosmos Energy told bidders last week it had "entered into an exclusive binding agreement" with Exxon to sell the stake in Jubilee. Kosmos is partially owned by private equity firms Blackstone Group LP (NYSE: BX) and Warburg Pincus.
The rival bid, which is expected to be about the same amount or slightly above Exxon's offer could set up legal and political battles lasting for months, one person familiar with the matter told the Journal.
Kosmos feels it can sell the stake to whomever it wants, so long as the Ghanaian government gives its consent, and the Ghanaian government "can't be unreasonable in their refusal," the unidentified source added.
But the Exxon-Kosmos deal riled the Ghanaian government and GNPC, which had been trying to increase its 13.8% stake in the field.
"I don't see the deal as done," said GNPC chief executive Thomas Manu told the Journal in an interview, adding he believed the country had the right to block the offer.
The news follows recent reports that China, the world's second-largest oil consumer, is also in talks with Guinea, another resource-rich West African nation, over possible financing for infrastructure and minerals projects – and to prospect for oil, the Financial Times reported.
Guinea, China International Fund and the Angolan state oil company have signed a "memorandum of understanding" to explore for oil, the paper said. The negotiations involve deals worth as much as $7 billion and could be completed by the end of the year, the FT said, citing Guinea Minister of Mines Mohamed Thiam.
Chinese oil companies have announced plans to spend at least $16 billion to gain access to African energy assets since 2006 to help fuel its economy and bolster energy security.
In August, the Financial Times reported CNOOC is in talks with Nigeria to buy 6 billion barrels of oil – equivalent to one-sixth of the country's total reserves – which could cost between $30 billion and $50 billion.
"The Chinese are desperate to feed their economic growth with African oil, including Nigeria's, and they need new markets for their consumer and industrial output," Arild Nodland, chief executive officer of Bergen Risk Solutions AS Ltd., told Bloomberg News.
China's oil consumption has doubled in the last decade, soaring to 8 million barrels per day (bpd) last year from 4.2 million bpd in 1998, according to BP PLC's (NYSE ADR: BP) Statistical Review. China imported 3.6 million bpd last year, equivalent to about 45% of its needs.
The Chinese government backs companies such as CNOOC with foreign currency holdings estimated at more than $2 trillion in a quest to acquire long-term access to strategic commodities — especially oil — around the globe.
As it makes deals with undeveloped countries to secure those assets it also bolsters the negotiating positions of oil-rich nations, putting it at odds with Western oil companies, including Exxon Mobil, Dutch Shell PLC (NYSE ADR: RDS.A, RDS.B), Chevron Corp. (NYSE: CVX), and Total SA (NYSE: TOT).
If the Chinese are successful in derailing Exxon's Jubilee deal, it would represent a major blow to Exxon's efforts to secure new territory for its oil-development arm. The Kosmos deal would be Exxon's first major purchase in 10 years and give it a critical foothold in the region.
Western oil companies have been frustrated recently in their quest for unexplored territory containing oil. Brazil, with several of the largest new discoveries, recently said it would create a new national oil company to develop the new deepwater-fields instead of leasing them to foreign companies.
News and Related Story Links:
- Wall Street Journal:
Cnooc, Exxon Vying for Stake in Ghana Field
- Financial Times:
China in push for resources in Guinea
- Financial Times:
China seeks big stake in Nigerian oil
- Money Morning:
China Blazing Its Own Trail in Africa