China Is Winning The Offshore Oil Game

In the United States, CNOOC has assets in Stampede and Appomattox fields in the Gulf of Mexico, the latter of which just recently went into production. Stampede went into production last year.

CNOOC is exploring other offshore areas as well, in both oil and gas, including in the Republic of Congo, in the Haute Mer A block, Gabon in blocks BC 9 and BCD 10’s Leopard-1 well, in Senegal’s AGC Profond Block, and Nigeria’s OML130 block including in the Egina and Akpo fields, which are already in production.

Even Brazil’s most recent oil auction, which ended up as a huge disappointment for Brazil, found interested bidders in CNOOC and CNPC—the only bidders in the auction aside from Brazil’s state-run Petrobras. The reason for the lackluster interest was the high cost of the auction and a complicated deal structure with Petrobras. That didn’t deter China.

China has also made an offshore foray into Canada, purchasing a few years back Alberta-based Nexen for more than $15 billion. Nexen holds offshore oil assets in the North Sea, Africa, and the Gulf of Mexico, and in Canada’s East Coast, including the Flemish Pass, where it is set to commence a wildcatting campaign in just a few short weeks.

China’s quest for drilling know-how

What’s similar about many of these deals is that China’s deepwater projects are often as part of a consortium. This allows China’s state-run oil giants to glean experience and technical know-how for deepwater drilling, which they can also use back home, where drilling is particularly difficult.

The other similarity is that China seems to have an abundance of cash and is willing to overlook host countries’ lack of transparency and security and corruption issues--finding that oil seems to be worth the risk--at any price.

Scrambling for China’s Deep Pockets

When it comes to countries willing to host China’s oil ambitions, there are few unwilling participants. Africa--particularly Angola and Nigeria--and Latin America, such as Venezuela, have been more than eager to get their hands on China’s cash. This could be in the form of bank loans to host countries in exchange for oil, or in direct payments to state-run oil companies for oil project stakes, and mergers and aquisitions, like CNOOC’s Nexen purchase above. Related: BP Under Fire For “Misleading” Advertisements

All told, other countries’ debt owed to China rose tenfold between 2000 and 2017, from less than $500 billion in 2000 to more than $5 trillion in 2017, according to a study from German think tank Kiel Institute for the World Economy, and much of that debt is “hidden”, that is, not reported to the IMF, World Bank, or Paris Club. This means that no one really knows exactly how much money China is throwing around and to whom or for what.

But estimates do exist, mainly from news reports and even government press releases--mostly unofficial sources---a trend that highlights the nontransparent nature of China’s deals, including offshore oil deals.  

Angola, for one, has attracted more of China’s money for energy projects than any other African country since 2000—at least we think--well before the oil price crash, according to a Boston University study from last year. 

From 2000-2018, China funded US$34.8 billion in African energy projects, $8.9 billion of which went to Angola, and $6.6 billion of which went to Nigeria. Not all of the funds went to offshore projects, but with China throwing its dollars toward African energy projects in general, shows China’s wisdom in banking on a population explosion on the continent, to more than 1.3 billion people by 2050—logically increasing energy needs for Africa.  

In Latin America, Brazil is a primary target for Chinese invesments, with an estimated $17 billion in funds moving from China to Brazil from 2010 to 2013. Argentina, Colombia, Ecuador, and Bolivia were also recipients of Chinese money in the form of petroleum investments. 

But the relationship that is highlighted the most in recent years has been with Venezuela--who is in dire need of cash. China has provided $50 billion in oil-backed loans to Venezuela since 2007, unphazed by Venezuela’s undemocratic government that spooked many Western rivals.

It is unlikely that China is finished with its offshore oil plans. There is nowhere China won’t go on its oil quest, and there aren’t many competitors big enough -- or brave enough -- to compete for these risky, high-cost offshore projects unpopular host countries. 

Will it find enough oil offshore to feed its 10 million bpd import habit?  

By Julianne Geiger for Oilprice.com

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