Tuesday, September 29, 2009

China's CNOOC In Bid To Buy A Sixth Of Nigerian Oil Reserves; Gains For ERHE Seen

The news tickers are chattering happily away this morning with a Reuters story that China's giant overseas financial arm, CNOOC, plans to buy uo to one-sixth of Nigeria's oil reserves in one fell swoop for up to $30 billion.

There is no word yet on whether the company has its eye on ERHC Energy reserves in the Gulf of Guinea, where ERHC is partnered with Sinopec, also a state-owned company not quite as large as CNOOC and traded publicly on the NYSE.

There will be enormous political fallout from this news, and it is likely to affect the next presidential election and state elections in the interim. Nigerian politicians have relied on being able to siphon and embezzle billions from their various state oil entities, and the CNOOC deal could foreclose their access to some of that lucre.

At the same time it might provide Nigeria's leaders a steady supply of reliable funds to begin the hard work of buildng a power infrastructure, for instance, which they have avoided for a century.

In any event, it represents yet another challenge to America's hunt for foreign oil to ensure its own reserves are not tapped until petroleum fields around the world begin to run dry. Some may call it America's failure. not its challenge.

The real surprise, given that China's interest in Nigerian oil both on land and at sea has been widely known, is that so much of its oil remains uncommitted now. The country has been selling off rights at a fast pace to a welter of developers ranging from two-man wildcats to the likes of ExxonMobil, Chevron Texaco and European firms.

At the practical level, interest on this scale ought to move up the falling price of ERHE shares, which have declined from a recent high of $0.89 ro $0.70. We suspect there will be a gain of at several cents in today's trading.

Here is the Reuters take:

LONDON/BEIJING, Sept 29 (Reuters) - Chinese state-owned oil company CNOOC is in talks with Nigeria to buy large stakes in some of Africa's richest oil blocks, the Financial Times reported on Tuesday.

The value of the potential deal was not disclosed, but some details suggested a figure of around $30 billion, the FT said.

It said CNOOC, China's No. 3 oil and gas producer and an offshore specialist, was bidding for 6 billion barrels of oil, equivalent to one sixth of the proven oil reserves in Nigeria, which vies with Angola to be Africa's largest oil producer.

Yang Hua, president of CNOOC Ltd., the listed arm that has been the main vehicle for the firm's overseas investment, declined to comment.

"You know my standard answer - no comment," Yang told Reuters when asked if he was aware of the FT report.

CNOOC's spokesman Xiao Zongwei said he had never heard of the development reported in the paper. The FT said the deal was detailed in a letter it had seen from the office of Nigeria's president, Umaru Yar'Adua, to CNOOC's representative, Sunrise.

There was no immediate comment from the Nigerian presidency or from Nigerian state oil firm NNPC. Shares in CNOOC Ltd rose 2.7 percent in Hong Kong, slightly exceeding a rise in the benchmark Hang Seng index.

If the bid is successful, it could place the company in competition with major Western oil groups like Total, Royal Dutch Shell, Chevron and ExxonMobil , which operate the 23 blocks under discussion, the newspaper said.

"The industry is aware locally that there is an interest from Chinese national oil companies to acquire oil blocks in Nigeria," an oil industry source said. "It is not a secret. The quantity cited by the FT is however surprising."


Analysts said the leak appeared to be an effort to put pressure on long-standing Western oil partners in Nigeria at a time when relations with the industry are strained.

"For some time relations between the government and the international oil companies (IOCs) have been difficult, first over funding of joint ventures, over arrears, reviewing the terms of production sharing contracts (PSCs)," said Antony Goldman, head of London-based PM Consulting and a Nigeria expert.

"Some of these licences have come up for renewal and the government feels they are worth more than the IOCs are prepared to pay to renew them," he told Reuters.

So far the largest investment CNOOC has made in Nigeria was a $2.69 billion stake purchased in 2006 in deepsea oil block OML-130, which operator Total said in March had started pumping oil to reach 175,000 barrels per day output during the summer.

Tanimu Yakubu, the Nigerian president's economic adviser, said in the FT report that China may not secure "anything close" to the 6 billion barrels it is seeking, saying: "We want to retain our traditional friends."

He added, however, that the Chinese "are really offering multiples of what existing producers are pledging (for licences). We love to see this kind of competition."

Peter Hitchens at Panmure Gordon & Co also said the reserves that could change hands would be smaller than 6 billion barrels.

"Although we believe that this deal is unlikely and that the actual reserves sold could well be smaller, it highlights the desire of Chinese oil companies to secure significant reserves in Africa," Hitchens said in a note.

In a recent Chinese acquisition of Nigerian oil assets, No. 2 oil firm Sinopec Group paid $7.24 billion for Swiss oil and gas firm Addax, which operates in Nigeria and other African states.

(Reporting by Nick Tattersall in Lagos, Randy Fabi in Abuja, Jan Harvey in London, Chen Aizhu in Beijing and Sui-Lee Wee in Hong Kong; Editing by Lincoln Feast and Anthony Barker) Keywords: NIGERIA OIL/ =2 (jan.harvey@thomsonreuters.com; +44 207 542 7744; Reuters Messaging: jan.harvey.reuters.com@reuters.net) .

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