Win or lose, CNOOC remains key player in 'go out' policy

PUBLISHED : Tuesday, 19 July, 2005, 12:00am
UPDATED : Tuesday, 19 July, 2005, 12:00am

CNOOC's US$18.5 billion bid for Californian oil and gas company Unocal is the most dramatic example yet of China's 'go out' policy to secure foreign sources of raw materials.

If the bid fails, CNOOC will suffer a big setback in its attempts to lay its hands on overseas energy reserves and know-how. But the 'go out' policy will remain in place.

Whether the US Congress likes it or not, China's resources companies are going to be an increasingly assertive presence in the world's commodity markets.

A quick glance at the list of China's overseas energy deals over the past few years illustrates the trend. In April this year, CNOOC paid US$122 million for a 17 per cent stake in MEG Energy, a Canadian company licensed to extract oil from tar sands in Alberta.

The potential of Canada's vast deposits has aroused the interest of other Chinese energy companies. Weeks later, China's Sinopec also bought into a Canadian tar sands project, while PetroChina signed a deal to invest in a US$2 billion pipeline to pump oil from Alberta's tar sands to the Pacific coast.

Elsewhere, both Sinopec and PetroChina's parent, China National Petroleum Corporation, have invested heavily in Iran's oil and gas industry, even taking equity stakes in the Yadavaran oil field, which is expected to come on stream in 2009.

CNPC has also invested in oil and gas assets in Sudan, Brazil, Venezuela, Uzbekistan and Kazakhstan. Sinopec has bought into projects in Angola and Nigeria, Azerbaijan and Kazakhstan, while CNOOC has spent well over US$1 billion on equity stakes in oil and liquefied natural gas fields off Indonesia and Australia.

Although CNOOC's bid for Unocal differs in magnitude from any previous deals both in its scale and its opportunism, it follows in the same spirit. Chinese energy companies have been told by Beijing to secure foreign sources of oil and gas, and are said to have earmarked as much as US$100 billion for overseas acquisitions.

If CNOOC's bid for Unocal is defeated, the loss will be a severe blow to company chairman and chief executive Fu Chengyu, but it will not halt the overall process of investment overseas.

If observers doubt that, they have only to look at other sectors Beijing deems vital to China's long-term economic security. Take minerals, for example.

Earlier this year, China Minmetals, the giant state trading company, failed in its attempt to acquire Noranda, a major Canadian producer of zinc and copper.

Minmetals executives are tight-lipped about what exactly scuppered the negotiations, but given that they stress relations between the two companies are still friendly and that Noranda flagged Minmetals as a possible investor in its nickel mining project in New Caledonia, it is likely that mounting economic nationalism in Canada played a role in seeing off the Chinese company.

But the defeat has not blunted Minmetals' appetite for overseas investments. At the end of May, the Chinese company agreed to invest an initial US$550 million in a joint venture with Chilean copper giant Codelco to develop a new mine in the South American country.

Minmetals has also made investments in Jamaica, Cuba and the US, where it last year acquired control of Sherwin Alumina. Now Minmetals is planning to inject $2.9 billion of its alumina trading business into a listed Hong Kong subsidiary to be renamed Minmetals Resources.

Company executives make no bones about the purpose of the move: to help Minmetals raise capital in international markets and to provide the company with an offshore springboard for further international acquisitions.

Locking in long-term supplies of energy and raw materials is central to China's industrial development strategy.

Its companies are not going to be deterred by a couple of blocked takeover attempts.