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TheJournal (NY): Exxon, Shell lose access to fields as China, India bid for oil

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(Original publication: February 12, 2006)
Exxon Mobil Corp.'s biggest competitor in the quest for oil reserves isn't BP PLC or Royal Dutch Shell PLC. It's the governments of China, South Korea and India.
Chevron Corp. and Exxon Mobil lost an auction for Nigeria's most promising oil and gas fields last year to companies controlled by South Korea. In Venezuela, Royal Dutch Shell's bid to develop an offshore gas deposit collapsed when Brazil's state oil company stepped in.
The world's biggest publicly traded oil producers are losing reserves to state-run companies willing to pay higher prices for energy needed to fuel growing economies. Petroleo Brasileiro SA, China's Cnooc Ltd. and India's Oil & Natural Gas Corp. have all bought reserves in the past year.
State-controlled oil companies represent “unpredictable competition,” said David Pursell, an analyst at Pickering Energy Partners in Houston. “All of a sudden, Cnooc shows up. What's their cost of capital? I don't know. What's their strategy? I don't know.”
The increasing competition for oil and gas fields is driving up costs, hurting corporate profits, while bolstering crude oil prices by inflating the cost of production. In the early 1990s, less rivalry for fields existed because countries such as China produced more oil than they consumed and prices were lower.
Last year, Chevron bought Unocal Corp. for $17.8 billion, $1.4 billion more than initially planned, after Cnooc made a counterbid. Cnooc at one point offered $18.5 billion for California-based Unocal, which holds reserves in Thailand, Indonesia and Myanmar.
Unocal shareholders accepted Chevron's lower offer after the U.S. Congress threatened to block Cnooc's bid.
More than half the oil and gas reserves that changed hands since 2003, through corporate acquisitions or the sale of drilling rights, went to state-owned companies, BP Chief Executive Officer John Browne said in a speech in Singapore in November.
“Energy is an issue of national security in which governments, and the state companies that they have established, are likely to be involved for a long time,” BP's Browne said.
National oil companies did about 15 major transactions outside their own borders last year, up from two in 2000, said Saad Rahim, an analyst at PFC Energy in Washington. The state companies are a “new breed of competitor” that are driving prices higher and squeezing returns on international projects, Morgan Stanley's oil analysts said in a report in November.
Rebuffed in the U.S., Cnooc last month paid $2.3 billion for a stake in a Nigerian oil field. Another state-controlled company, China National Petroleum Corp., in October acquired PetroKazakhstan Inc. for about $4 billion.
Buying PetroKazakhstan, based in Calgary, gave the Chinese control of about 12 percent of the petroleum production in Kazakhstan. The price per barrel China National paid was about double the price in transactions last year.
Oil output is rising in Kazakhstan, which has about 3 percent of the world's proven reserves.
Nigeria's top oil official, Edmund Daukoru, has said that ties between governments are a legitimate part of the process of selecting partners to develop energy projects

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