China’s move signals oil and gas ambition

Oil rigs are scarce commodities these days; so scarce that it can be easier to buy a company that owns them than to buy the rigs themselves. That is one of the main motives behind China Offshore Services’ $2.5bn acquisition of Awilco Offshore.

There has been a high level of sensitivity over Chinese companies’ acquisitions of natural resources, most notoriously in the attempt by China National Offshore Oil Company, COSL’s parent, to buy Unocal of the US in 2005.

The takeover of Awilco, while likely to be far less politically sensitive, is a sign that oil rigs are themselves valuable resources.
As China’s mature onshore fields decline, future production growth is exp-ected to come from the relatively undeveloped offshore fields. Buying Awilco will give CNOOC additional rig capacity to deploy in the waters of Bohai Bay and the South China Sea.

Recent exploration success in Chinese waters has raised hopes this will prove a successful strategy. Petro-China’s Jidong Nanpu discovery in Bohai Bay, announced last year, has been estimated at 7bn barrels, making it China’s biggest oil find for 50 years.

The potential of the South China Sea could be even greater. In the 1980s, China suggested it could hold more than 200bn barrels.

The agreement this year between China and Japan over rights to oil discoveries in the Eastern Sea, which had been disputed waters, has opened up another potentially fruitful territory for exploration.

The biggest obstacle for the Chinese and others hoping to explore these areas is a shortage of resources. Offshore areas, particularly in deep water, are the focus of exploration efforts the world over, in regions such as the Gulf of Mexico, west Africa and Brazil.

The resulting demand for drilling rigs and other offshore equipment has sent prices soaring.

Costs of developing oil and gas exploration and production projects have doubled since 2005, according to IHS, a consultancy. An average semi-submersible rig, for use in deep water, costs about $300,000 per day to hire, according to Rigzone, the data service.

Financial Times