Last updated: May 13, 2009 8:27 pm

CNOOC

Deal with BG Group is more circumspect

Four years ago China National Offshore Oil Corporation caused a mighty rumpus with a bid for California’s Unocal. China’s biggest offshore producer of oil and gas has since become a lot more circumspect beyond its familiar borders. A deal to buy gas from BG Group’s proposed liquefied natural gas plant in Queensland, announced on Wednesday, is a case in point. State-owned CNOOC will become a 10 per cent equity investor in one of the two liquefaction plants forming the first phase of the development. It will also take 5 per cent of the related coal-seam gas reserves – the first time BG has sold equity in reserves as part of a supply deal. In return, CNOOC will get an assured supply of LNG for 20 years at an undisclosed rate.

This is more like it. CNOOC’s strong cash position and last year’s reduced dividend – down to 36 per cent of net income, from the customary 40-ish, in a year of record oil prices – led some to fear that the smallest of China’s big three oil companies was preparing something drastic.

Cosying up to the likes of BG – the pair agreed last year to explore opportunities for co-operation – is much the better option. In many ways, CNOOC is BG’s mirror image in the east. With near identical market capitalisations and cashflow multiples, both are high-growth, low-cost, offshore drillers, with perhaps the best-looking balance sheets among their peers.

For the British company, the vote of confidence in the still-unproved science of converting CSG into LNG is welcome – its previous supply deals, such as a smaller contract with the government of Singapore agreed last April, were signed in less cynical times. China, meanwhile, still wants to boost its use of gas to 10 per cent of total energy consumption by 2020, from about 3 per cent today. Better to get there by degrees than through one or two knockabout public deals.

BACKGROUND NEWS
 

BG Group announced on Wednesday that it had signed a liquefied natural gas project development agreement with one of China’s leading integrated energy companies, CNOOC and its affiliates, focused on BG Group’s Queensland Curtis LNG Project in Australia.

Under the agreement, CNOOC will purchase 3.6m tonnes per annum of LNG for a period of 20 years from the start-up of the project, which is being developed by QGC – a BG Group business

To e-mail the Lex team confidentially click here
OR
To post public comments click here

The Lex column is now on Twitter. To receive our daily line-up and links to Lex notes via Twitter, click here

Copyright The Financial Times Limited 2015. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.

SHARE THIS QUOTE