Oil Patch Insider

Asian tiger prowling for oil prey; Newfoundland’s good cop, bad cop

China’s integrated oil giant PetroChina is paying US$2.5 billion to buy half the upstream assets of its parent China National Petroleum Corp. (CNPC).

The deal, covering reserves of 780 million barrels of oil equivalent in 11 countries, will allow Hong Kong and New York-listed PetroChina to extend its reach from aging offshore Chinese oilfields and embark on a drive to bulk up on foreign assets and help satisfy rising domestic demand.

It comes as China has set up a special office to “tap overseas oil and gas reserves” to meet an expected 100 percent growth in internal energy consumption over the next 15 years.

That will put China’s renowned bargaining skills to the test.

If the recent past is any indication, those skills will need some sharpening.

Twice in the last three years, PetroChina has made fumbling attempts to take over Husky Energy, one of Canada’s five integrated oil companies.

Its first bid in 2002 apparently collapsed when it was unwilling to pay any sort of premium for Husky’s impressive bundle of assets, including extensive oil sands reserves and a heavy oil upgrader.

That produced a blistering comment from Husky chief executive officer John Lau, who said: “You don’t expect to get a Cartier watch by paying a Seiko price, right?”

There was fresh speculation late last year that either PetroChina or Sinopec were pondering a takeover bid for Husky.

When a firm offer failed to materialize, Lau observed that the Chinese government apparently “doesn’t know what it wants … I don’t think it knows how to do a transaction.”

The full extent of the missed opportunity in 2002 is now apparent.

At the time Husky carried a market value of C$7 billion. Following an 80 percent gain in share values over the last year, it is now worth more than C$19 billion and is moving ahead with its own C$10 billion oil sands project.

It will be interesting to see if the Chinese have absorbed a lesson from that experience as they again enter the global marketplace. CNOOC, China’s third largest oil producer and an arm of state-owned China National Offshore Oil Corp., has confirmed it is weighing a “possible” competing bid to top Chevron’s US$16.4 billion offer for Unocal.

Newfoundland’s good cop, bad cop

He’s Ed Byrne, natural resources minister in Williams’ cabinet.

It was Byrne who was dispatched to Calgary about a week after his boss sent a nervous tremor through the petroleum industry when he demanded a better financial deal for his government from future offshore oil and gas projects.

In meetings with the Canadian Association of Petroleum Producers, Byrne said that although Newfoundland believes it is entitled to more generous returns during a period of high commodity prices it won’t impose any changes retroactively.

All the province is seeking is a chance to remain competitive with similar jurisdictions, Byrne said.

That was a softer line than Williams’ threat to leave resources in the ground if it can’t squeeze a better deal from the industry.

Byrne said the government is assessing other royalty regimes to position itself for what it anticipates will be much greater development of the Atlantic continental shelf. He said only 130 exploratory wells have been drilled in just a few of the 20 major geological basins that represent one of the world’s “largest unexplored regions.”

Byrne said the Newfoundland offshore, which produced its first barrel only eight years ago, is still in its infancy, although he conceded that the region carries high costs and high risks.

Industry officials pointed out to Byrne that the successful industries in Alberta and British Columbia are underpinned by favorable royalty and regulatory regimes.

They also noted that the industry has accounted for half of Newfoundland’s economic growth over the past eight years, 15 percent of its Gross Domestic Product, has paid C$500 million in royalties and employs 7 percent of the work force.

Cassandra still looking for Katalla well investors

Late last year the Alaska-based independent decided to cut back its drilling program from two or three wells to one well. The project is on private land near the former town of Katalla, the site of Alaska’s first commercial oil production in 1902. The field was shut in following a refinery fire in 1933.

Cassandra, which is owned by a group of private investors, is looking for partners or investors for the Katalla project and is hoping to mobilize equipment yet this year.