Chinese firms change course with Libra bid

Competing for undeveloped offshore field in Brazil is new strategy for CNOOC and CNPC, which usually buy into established projects

PUBLISHED : Tuesday, 22 October, 2013, 3:27am
UPDATED : Tuesday, 22 October, 2013, 3:27am

For Chinese oil companies more used to buying into operating fields, competing in a Brazilian auction yesterday for the giant Libra field represented a change in strategy.

China National Offshore Oil Corporation (CNOOC) and China National Petroleum Corporation (CNPC) were among 11 companies registered to bid for what may become one of the world's two largest deepwater fields, requiring an estimated US$185 billion investment. Libra holds as much as 12 billion barrels, or three years of China's consumption, Brazil's oil regulator estimates. Other bidders included Royal Dutch Shell and France's Total.

"This is too big an opportunity for them to miss," said Houston-based Ivan Cima, the head of Latin American research at Wood Mackenzie.

Only one successful well has been drilled at Libra, part of subsea prospects known as pre-salt that contain the biggest oil discoveries this century. Winning the licence would shift strategy for Chinese state producers to one of drilling and developing new deposits, after years of buying into operating fields and more advanced exploration projects in Latin America.

China's state-controlled companies have less experience drilling in deep waters and would work in partnership with Petroleo Brasileiro (Petrobras), the world's biggest producer in waters deeper than 300 metres. Brazil requires state-run Petrobras to take at least a 30 per cent stake in concessions for the deposits that lie beneath a layer of salt below the Atlantic seabed.

"The Chinese usually prefer to pay a bit more for production" rather than exploration assets, said Caio Carvalhal, a Sao Paulo-based oil equity analyst at JPMorgan Chase.

The first auction of pre-salt fields using a production-sharing model will require an investment of US$185 billion over the 35-year concession, according to the Brazilian regulator. Production is forecast to exceed 1 million barrels a day when fully ramped up.

Since 2010, China has picked up developed assets or fields with advanced exploratory activity in Ecuador, Argentina, Venezuela, Brazil and Colombia. China Petroleum & Chemical Corporation (Sinopec) has been the third biggest spender in the region since 1998.