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China Looks to Downstream Deals as Upstream Acquisition Strategy Fails to Deliver

The steady rate at which China’s oil self sufficiency is declining and the unprecedented levels to which it is falling may accelerate the pace of Chinese oil acquisitions in coming years, but it is also leading to new and innovative ways of securing oil supply. Despite a flurry of acquisition activity across the world, Chinese government-owned companies have been unable to keep pace with surging domestic oil demand. The graph below shows the steady rise in China’s foreign oil dependence and shows how fast the contribution of Chinese state-owned companies (CNOOC, CNPC, PetroChina and Sinopec) has been falling.

It’s an open question as to how low China will want to see its oil dependency go but China’s foreign oil dependency will soon equal that of the United States, which some US observers have suggested is uncomfortably high. China’s thirst for hydrocarbons led it to abandon the ideal of oil self-sufficiency back in the late 1980s, (according to Jonathan Story writing in the Middle East Economic Survey in February 2004).

The Full Article is available for free on the Oil Blog.

First Quarter 2011 Oil and Gas M&A Hits $45 Billion, as Shale Resources Continue to Dominate

The value of deals announced reached $45 billion in the global E&P sector during Q1 2011. A quarter in which the oil price broke through $100 per barrel on the back of increasing unrest in the North of Africa, and the world still clambered to get on board the movement towards shale resources. The total global upstream deal value of $45 billion is higher than all but three quarters over the past 3 years. That’s according to Evaluate Energy’s Global M&A database (www.evaluateenergy.com) which tracks all global E&P deals on a daily basis.

Top 10 Deals of the Quarter

* Normalised acquisition metrics have been adjusted for the value of non upstream assets and additional upside for probable, possible and contingent reserves.

As can be seen from the table it was the Asian National Oil Companies who were most willing to pay a premium on the market value of proved reserves during the quarter, even for North American gas weighted assets which have recently been changing hands at a discount to historical rates (BHP paid $1.42 per mcfe during the quarter). The normalised cost per proved mcfe equates to just under $4 for these companies, which is in line with the current final market price of gas, as per the Henry Hub benchmark. These metrics show that these companies are either optimistic about where the gas price will lie in the future, or they’re willing to make a financial loss in order to gain access to shale extraction technologies.

The heavily discounted price paid for Lukoil of $1.54 per proved boe, is typical for upstream deals in Russia, where profitability is restricted by the country’s unattractive fiscal regime. The typical Enterprise value/1P boe for the Russian Integrated companies is $3-$4 per boe whilst European and North American majors enjoy metrics of $15-$20 per boe.

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