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Eric Ng

Red chip CNOOC is on the verge of investing up to US$1 billion in two projects that will transform it into a pan-Asian oil and gas company, according to analysts.

China's dominant offshore oil and gas producer is expected to announce later this month it will take a stake worth at least US$500 million in the Australian natural gas project chosen to supply gas to Guangdong province.

CNOOC yesterday said its parent, China National Offshore Oil Corp, had selected Australia's LNG Partners for a US$13 billion contract to be the sole supplier of liquefied natural gas (LNG) to a terminal in Guangdong.

The contract is Australia's largest single export deal, according to Prime Minister John Howard.

Analysts said CNOOC may also acquire a stake in an Indonesian gas project worth up to another US$500 million in an expected tie-up with British oil and gas giant BP.

CNOOC said its parent was in talks with BP, which owns the Tangguh gas project in Indonesia, on the supply of gas to a planned LNG terminal in Fujian province, in which CNOOC has a 60 per cent stake.

The potential acquisitions by CNOOC form part of the negotiations on the gas-supply contracts.

In essence, the suppliers will have to sell part of their gas exploration and production projects in exchange for the contracts.

If both the Australian and Indonesian acquisitions are made, CNOOC could boost its natural gas reserves by up to 30 per cent, according to HSBC Securities analyst Gordon Kwan.

'It will position the company as a pan-Asian oil and gas company,' he said, adding that with a cash pile of about US$1.5 billion, it would have no problem funding both acquisitions.

Analysts said CNOOC chief financial officer Mark Qiu told them yesterday an announcement on the acquisition of the North West Shelf gas project northwest of Australia would be made this month.

Mr Kwan said he expected the acquisition to be made on August 23, when CNOOC's first-half results will be unveiled.

BP's Tangguh project in Indonesia was one of the unsuccessful bidders for the Guangdong contract, but Mr Kwan said it was most likely to be awarded a separate contract to supply gas to Fujian.

He described the arrangement as a 'win-win' that would please most of the international oil giants involved in the bid and possibly secure cheaper gas for Fujian.

Australian LNG Partners, winner of the Guangdong bid, is equally owned by Australian oil firms Woodside Petroleum and BHP Billiton Petroleum, Japan Australia LNG and the Australian units of BP, Chevron Texaco and Royal Dutch/Shell.

The Guangdong contract will allow the Australia North West Shelf project to sell an estimated US$13 billion of gas over 25 years.

The loser appears to be ExxonMobil, which bid through its Qatar unit.

BP had been tipped as the front-runner in the Guangdong bid, as its gas price was attractive.  Mr Kwan said that while BP was not 'punished' for pulling out earlier this year from China's estimated US$17 billion west-to-east gas pipeline project, it might have to pay a price in the potential Fujian contract.

He said China National had apparently proposed to grant BP the Fujian contract if BP agreed to sell gas to Fujian at the same price it had bid for the Guangdong contract.

This means BP may have to bear the higher costs in transporting gas from Indonesia to Fujian than to Guangdong.

The US$600 million Guangdong LNG terminal - 30 per cent owned by BP and 32 per cent by China National - is expected to start delivering gas in 2005, with an initial annual throughput of three million tonnes.

Mr Kwan estimated the Fujian terminal, which is expected to come on stream in 2006 or 2007 with an initial annual throughput of 2.5 million tonnes, would cost about US$500 million.

Graphic: lng09gbz



CNOOC pan-Asian play