On Monday, China National Offshore Oil Company (CNOOC), China’s foreign investment arm in the energy sector, surprised the oil world with its announcement to buy out Canadian oil company Nexen Inc for $15.1 billion in a friendly deal, giving it access to oil and gas fields in the North Sea, the Gulf of Mexico, and Nigeria, as well as oil-sands reserves in Alberta.
As if that deal is not enough, on the same day, China’s Sinopec, a national oil company, also sought to buy a 49 per cent stake in British oil firm Talisman Energy’s Canadian oil assets for $1.5 billion.
China has been on an M&A overdrive to satisfy burgeoning energy demand back home spending over $96 billion since 2001 on oil assets, according to a WSJ report. On the other hand, India has a poor track record in executing overseas oil deals as it has spent only $16 billion over the last decade.
As for some ongoing efforts by Indian companies, ONGC Videsh Ltd, (OVL) the foreign investment arm of India’s largest national oil exploration company ONGC, has just concluded detailed talks on buying office in Calgary and is in talks to acquire a stake in ConocoPhillips’ oil sands assets in Canada for an estimated $5 billion deal. Houston-based Conocophillips is divesting its non-core assets and is in the process of selling assets of $15-20 billion by end 2012.
Canada’s oil sands offers huge potential in oil and gas that is drawing global interest as a new source of non-conventional energy after the shale gas rage in 2010-11 in the US and oil assets in Greenland. Chinese companies have spent over $50 billion to acquire oil assets in Canada alone over the last decade. In contrast, the US companies have spent only a little over $30 billion in Canada, indicating China is turning the most aggressive in acquiring oil assets overseas.
China and India are now billed as the fastest growing energy guzzlers in the world, accounting for more energy consumption than the traditional West. But unlike China that has taken key strides in aggressive acquisitions, India and its oil companies are still moving at snail speed despite sitting tight on huge cash piles.
While GAIL, India's national pipeline company, has spent $1 billion in US and Canadian assets, RIL has forked out $1.3 billion in Pioneer Natural Resources, an oil company with assets in the US.
OVL that made its last acquisition in 2009 for $2.1 billion by buying out Imperial Energy, a company with assets in Russia, has made little progress over the last two years, only managing to buy a 25 per cent stake in Kazakhstan’s Satyapev block in a government to government deal.
ONGC has a cash reserve of around Rs 22,000 crore (about $5 billion) and the company is busy parking such funds in portfolio investments rather than making bold acquisitions to secure India's energy future. On the other hand, China’s oil companies have been an aggressive player both in terms of the bids they offer on the table and the strapping along with the deal.
Canada, for instance, is looking for foreign companies that can set up base in the country and not just exploit its resources. The US and Canada have been sceptical about China’s play, striking down an $18.5 billion bid for US’s Unocal in 2005 after a political backlash. Chinese companies are making strong moves and political noises about how it wants to be a local company in Canada. ONGC’s move to set up an office in Calgary is on the same track, but is far little and late.
Chinese oil companies have sweetened deals earlier in Africa and Latin America, with added offers to build infrastructure like railways, ports and power stations as the icing on the cake. India too has attempted on similar lines in Nigeria, where it teamed up with L N Mittal, but have made little progress as Indian government-owned infrastructure companies still struggle to form a consortium that can offer a similar deal.
The only acquisitions that have managed to get some upsides for India’s forex earnings are Reliance Industries’ (RIL) shale gas assets acquired in Central America in 2011 and that of Videocon and BPCL Cove Energy’s Mozambique block, where the two hold 10 per cent stake each. The offshore block is expected to have around 20 trillion cubic feet of gas. However, both the shale assets and the ones in Mozambique do not translate into increased sources for either oil or gas for energy-starved India that is importing 80 per cent of its total requirement.
Domestically, the picture is even bleak as only a handful of the blocks given out in the exploration auction rounds (nine so far) have made a discovery. India has given out 203 blocks in the last 12 years. The only exception in the otherwise patchy performance in India’s oil and gas sector is the Barmer fields in Rajasthan, operated by Cairn India, which projects a capacity to pump up to 300,000 barrels per day, subject to regulatory approvals. RIL’s biggest gas find in 2002 in the Krishna Godavari district off Andhra Pradesh has hit a huge hurdle, with the reservoir behaving unpredictably. RIL has roped in British Petroleum as its partner in its oil exploration assets to manage the reservoir and increase its production.
India has to take some bold steps for securing its oil future even if that requires an aggressive M&A play.
(Edited by Prem Udayabhanu)