Chinese NOCs Flash Big Dollars for Oil

Perhaps frustrated by efforts to build the infrastructure needed in their own country to get shale oil and gas flowing, Chinese national oil companies’ (NOC) are buying Texas oil assets.

Yantai Xinchao Industry Co. Ltd. said oil fields in Howard and Borden Counties would be purchased from Tall City Exploration and Plymouth Petroleum, according a disclosure to the Shanghai Stock Exchange reported by The Associated Press.

In the filing, a limited liability partnership, Ningbo Dingliang Huitong Equity Investment Center and seven shareholders intend to make the buy through a subsidiary, Moss Creek Resources LLC.

The purchase should come as little surprise to those following the embattled commodities market. With oil prices in the tank, it’s been widely expected that M&A deals, including those with foreign components, would pick up at the end of the year.

Chinese national oil companies have strong balance sheets and they have the capability – and the appetite – to acquire resources where they can, John England, chief of Deloitte LLP’s U.S. oil and gas practice, told Rigzone in July.

“They have a mandate to go out and try to acquire resources and they see the same macroeconomics that we do. They’re a huge consumer of energy, and so they want to make sure they’re getting supplies, getting access to supplies, broadly around the globe,” England said. “The Chinese are logical buyers for assets here, particularly when you think the IOCs [international oil companies] are changing around their portfolios. Some of the independents will be cash-strapped and so they’re potentially sellers. I think the Chinese NOCs are logical buyers; they’re just having to overcome some internal strife right now. It’s just a question of when they get those sorted out, but it’s reasonable to think they’ll be back in the market.”

In the past, China has not been a country rich in natural resources such as oil, gas and copper, Paul Ehrsam, senior vice president at U.S. Trust, Bank of America Private Wealth Management, noted. Instead, the country has purchased these assets through various ventures.

"Thanks to low prices, it is an opportune time for China to accumulate more resources. The Chinese have been very active over an extended period of time to secure natural resources for the country,” he said. "While I’m not familiar with the financials of the two selling companies, there are a number of motivated sellers because of low energy prices; motivated sellers meaning they may not have the financial flexibility to return to profitability without the prices of oil and gas going up from here.”


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