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The Wall Street Journal: Cnooc to Target Caspian Sea Area But Avoid Russia

By DAVID WINNING and RENYA PENG
November 28, 2007

Chinese offshore-oil producer Cnooc Ltd. wants to buy assets in the prolific oil-producing region of the Caspian Sea but isn’t interested in Russia because the risks are too high, a senior company official said.

Yang Hua, chief financial officer, added the Caspian Sea to a list of target regions where Cnooc is looking to build its core business, putting it alongside Africa and the Asian-Pacific region for the first time.

The Caspian Sea contains the Kashagan oil field, which was the world’s largest oil discovery for 30 years when it was found, and the region is ringed by major oil producers, including Kazakhstan, Iran and Azerbaijan.

Mr. Yang said Cnooc chose the three regions because of their resource base, financial and taxation policies and risk profile, including political, operational and environmental risks.

A number of oil companies operating in the Caspian Sea area have found it a tough place to do business. The consortium developing Kashagan, which is led by Italian oil and natural-gas company Eni SpA, is in a dispute with Kazakhstan over rising costs and delays in the start of production at the field.

International pressure is also building on Iran over its atomic-energy program, stifling plans by Anglo-Dutch oil company Royal Dutch Shell PLC and France’s Total SA to develop natural-gas reserves there.

Last year, China National Offshore Oil Corp., Cnooc Ltd.’s parent, confirmed it wanted to invest in developing the Northern Pars natural-gas field in Iran.

“We do not fear risks, but need to ensure the risks are manageable,” Mr. Yang said. “Although we look at Russia closely and with great interest, we won’t go there because the risk there is beyond our management.”

While Cnooc doesn’t have any assets in the Caspian Sea area currently, the company signed a memorandum of understanding with domestic rival China National Petroleum Corp. and Kazakhstan’s state oil company, KazMunaiGaz, in 2005 to explore and develop the Darkhan block in the country.

Write to David Winning at [email protected] and Renya Peng at

[email protected]

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