CNOOC/BP: CNOOC's purchase in March of a stake in Argentina's Bridas Corp looked like a risky resource grab. Now, as part of its post-spill strategy, BP is selling control of a key asset to Bridas for $7 billion. That bit of luck makes the Chinese oil giant's foray into Latin America appears more sensible.
The quest for foreign oil has been far from easy for China's state-controlled energy champions. Despite their deep pockets, they have mostly been unwelcome in large parts of the world, including Russia and the Middle East. CNOOC met this hostility head-on in 2005 when political opposition stymied its $18.5 billion bid for US oil group Unocal. CNOOC's purchase of a 50 per cent stake in Bridas earlier this year seemed partly to reflect a poverty of options.
The deal saddled the Chinese group with a messy governance structure in Argentina. Bridas owned 40 per cent of Pan American Energy, with BP holding 60 per cent. So the Chinese group's half share in Bridas gave it just a 20 per cent economic interest in PAE. The deal didn't even offer CNOOC full-blown exposure to oil prices, because Argentina caps export prices for oil. Considering these drawbacks CNOOC probably overpaid at the time.
But BP's Gulf of Mexico spill hit the headlines the following month. The British company's sale of its majority stake in PAE, the result of pressure to raise cash to pay spill-related costs, leaves CNOOC looking much better off. For a start the price looks less rich at around $8.2 per barrel of oil equivalent of proven reserves against $9.8 a barrel in the earlier Bridas deal, according to RBS. Also, as a 50 per cent shareholder in the company that will now own the whole of PAE, it will be easier for the Chinese company to defend its interests in the venture.
Of course, BP's eventual exit from Argentina was expected. Still, the British firm's relative haste is good news for CNOOC. Argentina may not be an energy firm's nirvana. But a slice of luck has helped turn a fairly passive-looking holding into something that could be a real bridgehead for Latin American expansion.
