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NEW YORK TIMES: Aggressive Search by Cnooc for New Oil and Gas Seen

NEW YORK TIMES: Aggressive Search by Cnooc for New Oil and Gas Seen

The Chinese energy company Cnooc is preparing to mount an aggressive international search for oil”

Friday 5 August 2005

By DAVID LAGUE,

International Herald Tribune

Published: August 5, 2005

BEIJING, Aug. 4 – The Chinese energy company Cnooc is preparing to mount an aggressive international search for oil and gas supplies in the aftermath of its failed bid for Unocal, oil industry experts say.

In announcing on Tuesday that it would abandon its $18.5 billion offer, Cnooc, shorthand for the China National Offshore Oil Corporation, signaled that it would continue to work with foreign governments and companies in its search for overseas oil and gas reserves.

Energy market experts now expect Cnooc, which is controlled by the Beijing government, to explore opportunities throughout the Asia-Pacific region, Central Asia, Russia and West Africa to find energy supplies for China’s booming economy.

“Cnooc lost the battle over Unocal, but it will continue to wage the war toward acquiring overseas energy assets to support China’s growing energy needs,” said Kurt A. Barrow, an analyst in Singapore with the energy consultant Purvin & Gertz.

The hostile reaction in Washington to Cnooc’s bid was a pointed reminder to the Chinese that politics remains a major obstacle to their plans to increase energy security. China’s growing oil imports have helped drive prices near record highs as competition for energy emerges as a point of friction among the big manufacturing economies.

Given its rebuff in the United States, said Ma Shang, an energy industry analyst with Fitch Ratings in Beijing, Cnooc should place less emphasis on big investments in Southeast Asia and South America, regions where Washington exerts strong political influence. Instead, Cnooc should follow PetroChina, which has secured substantial reserves in Central Asia.

“Because the energy market regards Cnooc as a state-owned enterprise,” Mr. Ma said, “its overseas acquisitions are more political compared with other global players. Cnooc should look to Central Asia or Russia. Compared to the U.S., these regions and Russia are more friendly to China.”

Many analysts say that Cnooc, which is listed on stock markets in New York and Hong Kong, is unlikely to find investment targets as attractive as Unocal, but that its political backing and access to cheap money will continue to make it competitive in world markets.

And Chinese energy companies have other advantages. Some have invested in places like Sudan, Iran and Myanmar, where the major international oil companies are unwilling or unable to operate, Mr. Barrow said.

Cnooc plans to become an important supplier of liquefied natural gas to China, and there are signs that it will concentrate on investment in natural gas reserves in Asia.

Experts suggested two such targets: Woodside Petroleum of Australia, which operates the North West Shelf natural gas project and owns 16.7 percent of it; and the Gorgon natural gas development, led by Chevron. Cnooc is already linked to both ventures, which have substantial reserves off northwest Australia.

In a complex agreement in 2002, Cnooc formed a joint venture with the North West Shelf project’s six partners, including Chevron, to take a stake of about 5 percent in the gas fields. Cnooc’s share of the reserves is equivalent to liquefied natural gas shipments of about 3.3 million metric tons a year over two decades starting in 2006, and with an estimated value of $20 billion. The venture supplies as much as 10 percent of Japan’s liquefied gas imports.

Analysts say that Woodside would be an ideal investment for Cnooc as it seeks to become China’s leading supplier of liquefied gas. Ownership of Woodside would also give Cnooc access to advanced deepwater exploration and development technology, a consideration that experts say was a major factor in its bid for Unocal.

Shell is the biggest shareholder in Woodside, with 34 percent. The Australian government in 2001 rejected a takeover bid from Shell because it would have given a foreign company control over the extraction and marketing of a major Australian energy resource. But China is soon expected to become Australia’s biggest trading partner, which might make officials in Canberra more flexible if Cnooc pursued Woodside.

In 2003, Cnooc signed an agreement with the Gorgon partners – Chevron, Exxon Mobil and Shell – that called on them to “place a significant volume of Gorgon L.N.G. for use in the growing Chinese market.” Cnooc was reported to be seeking a 12.5 percent stake in the project.

But talks with the Gorgon partners have failed so far to produce an agreement on price. Scott Walker, a spokesman for the venture, based in Perth, Australia, said that discussions were continuing.

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