Africa Pressures China's Oil Deals



LONDON (THE WALL STREET JOURNAL via Dow Jones), Sept. 30, 2009

China's search for large stakes in some of Nigeria's richest oil blocks comes against a backdrop of problems in other African countries where the Asian giant has oil operations.

On Tuesday, Nigeria's oil minister and a presidential spokesman said state-owned China National Offshore Oil Corp., or Cnooc, is in advanced talks with Nigeria to take over blocks that are owned by Royal Dutch Shell PLC and other companies, but are underutilized.

An official with Nigeria's state oil company said about 20 onshore blocks were on offer and that negotiations were at a late stage with some companies, including Cnooc. He said he wasn't sure exactly how much crude Cnooc was vying for, but that targeted investment would run into several billion dollars.

Cnooc officials couldn't be reached for comment.

The news of the Nigeria talks followed setbacks for China this month on deals in Angola and Libya. On Sept. 8, Libya vetoed a $462 million bid by China National Petroleum Corp. for Libya-focused Verenex Energy Inc. Days later, Angola's state-owned Sonangol said it wanted to block the sale of Marathon Oil Corp.'s 20% oil-field stake to Cnooc and China PetroChemical Corp., or Sinopec.

The setback in Angola -- China's largest African partner -- is in stark contrast with the enthusiastic reception it found there five years ago, when China was launching a quest for African resources to feed its economic boom. It made a spate of resource acquisitions in the form of oil-for-infrastructure deals.

In 2004, Sonangol chose Sinopec over India's Oil & Natural Gas Corp. for the sale of an oil-field stake by Shell. The deal came just after China's Export-Import Bank had granted Angola a $2 billion loan.

In the first half of 2008, Angola became China's largest oil supplier, covering 18% of its needs. China's commerce ministry reported Sino-African trade hit a record $106.8 billion for the year, up 45% from 2007.

But some in Africa are starting to find the Chinese embrace too tight. The formula of bartering oil for infrastructure initially had given China's oil concerns a competitive advantage against Western companies, whose investors were largely unwilling to fund such projects. But those same projects have become a key factor in China's setbacks. In particular, China state companies' insistence on keeping local hiring to a minimum has brewed resentment.

In 2006, Cnooc bought a 45% stake in Total SA's Akpo field for $2.3 billion. The field is now the company's biggest overseas asset, with a production capacity of 175,000 barrels a day.

But more than $10 billion of contracts with Nigeria signed in 2006 -- including renovation of a railway, the refurbishment a refinery and the launch of a satellite -- didn't produce results. That is partly because of a change of administration the following year but also because of commercial and technical pitfalls.

Chatham House, a U.K. think tank, this year published a study on how deals by Asian oil companies with the Nigerian government in 2004-05 in exchange for bankrolling infrastructure projects had generally failed. It concluded that the main reason was the Nigerian government's lack of "follow-up mechanisms to enforce the deals."

It is unclear whether Cnooc is offering to fund and build more nonoil projects in the latest round of contract negotiations.

Angola may not need China as much as it used to. On Tuesday, the IMF signed a tentative agreement with Angola that could lead to new loans from Western banks. And when Sonangol sought $1 billion of financing this month, the loan was 50% oversubscribed -- thanks mostly to European banks.

The U.S. has promised to ramp up investment in both oil and agricultural projects. As a result, China will likely have to pay more for its African oil push.

"China and African nations are now in the process of tailoring the high expectations raised over the last few years to the realities of any maturing relationship," said Christopher Alden, senior lecturer at the London School of Economics.  

Copyright (c) 2009 Dow Jones & Company, Inc.


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