China Is Finding It Harder To Do Oil Deals

According to Cnooc Chairman, Fu Chengyu, the environment for cross-border acquisitions in the oil industry remains "hostile,'' two years after the Chinese state-controlled oil producer failed in a US$18.5 billion bid for US-based Unocal Corp.

Trade protectionism is spreading and is bad for the global economy, Fu told Bloomberg in Hong Kong this week. Cnooc and other Chinese companies face greater challenges than their foreign rivals when making overseas acquisitions, he said.


Fu has bought fields in Africa and forged production agreements with Devon Energy Corp and BG Group Plc since U.S. lawmaker opposition blocked his attempt to buy Unocal. He spent US$2.7 billion buying Nigerian oil fields last year and has said that making acquisitions is a strategy at China's largest offshore oil producer.

"There are increasing barriers to cross-border capital transaction and cross-border asset purchases,'' said Eliot Cutler, partner at Akin Gump Strauss Hauer & Feld LLP, which represented Cnooc during the Unocal bid.

Cnooc, 66%-controlled by state-owned China National Offshore Oil Corp, abandoned its cash offer for Unocal in August 2005. Chevron Corp, the second-largest U.S. oil company, outmaneuvered Cnooc to buy Unocal for US$17.8 billion amid political opposition to the Chinese approach in Washington.

"The Unocal case was, if not an exception, at least atypical,'' Cutler said in an interview in Beijing earlier this month. "It's quite unfortunate at a time when Chinese investment, Chinese companies, Chinese funds, not only want to become outbound investors, but need to become outbound investors.''

China, the second-biggest energy consumer after the U.S., is encouraging Cnooc and state-controlled rivals PetroChina Co and China Petroleum & Chemical Corp, or Sinopec, to secure supplies at home and abroad to meet demand.

Chinese oil companies don't take larger political risks than their international rivals or pay more to snare oil assets, Fu said. Workers from China Petrochemical Corp, the nation's second-largest oil producer, were captured by Ethiopian rebels in April.

"We share no more political risks than international oil companies,'' Fu said. "All the investments we make are based on economic returns.''

"Making acquisitions is always a part of our company's strategy,'' Fu said at a briefing on Cnooc's earnings. "What projects to acquire depends on what value they will bring to the company. We don't make acquisitions just for the sake of it.''

China's oil imports jumped by 39% to a record last month, reflecting surging energy demand in the world's fastest-growing economy. The nation's oil needs will climb by 5.7% to 7.6 million barrels a day in 2007, the International Energy Agency said in an Aug. 10 forecast.

Clearly sovereign or semi-sovereign,'' Cutler said.

IMPORTANT: This message, together with the Fat Prophets website and all its contents have been prepared for general information only, and as such, the specific needs, investment objectives or financial situation of any particular user have not been taken into consideration. Individuals should therefore talk with their financial planner or advisor before acting on any information present on this message or the Fat Prophets website. Performance is hypothetical and based on recommendations made in the Fat Prophets report. The table is updated monthly. Transaction costs have not been taken into account. Past performance is not a reliable guide to future performance, and investors should be aware that returns can be negative. For a full explanation of the performance calculation methodology, please visit the Fat Prophets website.

By: FatProphets

Article Directory: http://www.articledashboard.com

Fat Prophets are leading global independent stock market advisors with a comprehensive product range of research reports for all investors. Visit the Fat Prophets website to www.fatprophets.com.au/about-fat/about-us.aspx>learn more and get expert advice on investing in shares and managed funds. www.fatprophets.com.au>fatprophets.com.au