WASHINGTON Aug 3 The $15 billion bid by China
National Offshore Oil Corp (CNOOC) to buy Canada's Nexen, Inc
will help the Chinese state giant gain the expertise to drill in
deep, disputed waters of the South China Sea without rel ying on
ris k-averse foreign firms.
The acquisition of Nexen -- which faces reviews by
both the Canadian and U.S. governments -- will not be an instant
game changer, however, because deepwater technology will take
years for China to master, say experts on China's energy sector.
CNOOC, parent of Hong Kong-listed CNOOC Ltd, has
emerged as a key component of China's strategy to bolster its
claims to nearly the entire South China Sea. The vast body of
water, believed to hold rich oil and gas reserves, is also
claimed in part by Vietnam, the Philippines, Taiwan, Brunei and
China's policy has also included diplomatic pressure aimed
at keeping the 10-member Association of South East Asian Nations
(ASEAN) divided over the sea dispute; the establishment of a
city government and military garrison at Sansha city in the
Paracel Islands; and more assertive patrols of cont ested seas .
The intensifying squabble in waters that carry $5 trillion
in annual trade drew a statement of concern on Thursday from
Washington, which officially is neutral on the dispute.
"The nations of the region should work collaboratively and
diplomatically to resolve disputes without coercion, without
intimidation, without threats, and without the use of force,"
said Patrick Ventrell, a State Department spokesman.
CNOOC become more deeply involved in China's South China Sea
strategy in late June when it invited foreign firms to bid on
oil blocks that overlap territory being explored by Vietnam.
Earlier CNOOC unveiled the Haiyang Shiyou (Offshore Oil) 981
rig, China's first domestically made ultra-deepwater rig.
The CNOOC tender drew a protest from rival Vietnam's
Petrovietnam, and most analysts expect that international majors
-- private Western firms who monopolize the technology to drill
in deeper water -- will shy away from investing in contested
"They may actually go so far as to buy the bids themselves
to see what the Chinese are up to, but I think companies are
very, very leery of getting involved in areas that are so hotly
disputed," said Bonnie Glaser, a China expert at the Center for
Strategic and International Studies, a Washington think tank.
"This is more a statement that the Chinese are making,
rather than a serious expectation that there will be any real
international bidding," she told reporters in a conference call.
This is where the Nexen deal offers China the deepwater
drilling know-how to move from the shallow or mid-depth waters,
where CNOOC is already drilling, to deeper waters in areas where
its claims overlap with Vietnam and others.
"There's plenty of deep water to be explored, but a lot of
it has been off-limits because of the disputes," said Mikkal
Herberg, research director of the Energy Security Program at the
National Bureau of Asian Research, a Seattle institute.
"They think about this very specifically -- having their own
capabilities so they can drill where they want without
international partners," he said of China's oil industry.
Nexen, Canada's 10th biggest oil company, has oil sands
operations in the Canadian province of Alberta, shale gas in the
province of British Columbia and extensive exploration and
production holdings in the North Sea, Gulf of Mexico and
offshore West Africa.
With the Nexen acquisition comes deepwater fields in the
Gulf of Mexico that would bring with it expertise in managing
complex operations and technology that, once assimilated, would
extend CNO OC's rea ch in the South China Sea.
The deal would give CNOOC -- an $89 billion company with oil
and gas assets in Indonesia, Iraq, Australia, Africa, North and
South America, as well as China -- "normal, competitive
technology that all major oil companies need ... with an overlay
of Beijing strategic interest," said Herberg.
The capacity to set up and maintain stable rigs in
5,000-10,000 feet of ocean water and drill 10,000-18,000 feet
deep in sediment, would not come overnight, experts said.
"Unlike refining and petrochemical technology, you can't
simply just buy this technology (and use it). If you do not have
experience you will have problems," said Kang Wu, managing
director of consultancy FACTS Global Energy in Honolulu.
"They still need foreign technologies -- that's the basic
status. If they want to acquire everything they still need five
or ten more years," he added.
Herberg, a 20-year veteran of the oil industry, noted that
the Western majors have been going deeper and deeper over 15 to
20 years of trying.
"Getting a couple of these production rigs is not going to
leapfrog (China) into a superior technology position. This is a
slow, gradual position," he said.