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.

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