China wants all of Repsol’s Latin American oil assets
You have probably heard the stories about China National Offshore Oil Company (CNOOC) bidding for Repsol YP’F’s Argentine assets in a quest for more natural resources for China. Well, apparently, the Chinese want a lot more than just Argentina; they want the whole of Repsol’s Latin American asset base.
The Chinese have been buying up African oil assets left and right. But, this is a HUGE asset grab by the Chinese in America’s backyard. Remember the Monroe Doctrine? Well, forget about that now, because it is game on for the Chinese.
Here’s my translation of the important bits of a Spanish-language article discussing this development.
Contacts between Repsol and several Asian companies goes beyond their Argentine subsidiary YPF. As confirmed by sources close to the talks, the Spanish oil company has negotiated with China National Offshore Oil Company (CNOOC) to unite all exploration activities in Latin America.
According to what Finanzas.com has learned, the discussions between representatives of the Spanish energy group and the Chinese oil company began a little over six months, but intensified in April and May. The aim was to create a group owned by the two companies, with the majority owned by Repsol, which bring their exploration activities.
The negotiations progressed to the point that both requested a valuation of the assets by two investment banks. However, according to official sources of the Spanish group, there has been no agreement between Repsol and CNOOC on price, such that the contacts have cooled in June. In fact, yesterday, the president of the third largest oil company in China said "CNOOC’s strategic focus remains focused on the search for cooperation, rather than mergers and acquisitions," explained Fu-Chengyuan.
Irrespective of whether these developments yield results, CNOOC obviously is willing to spend a lot of money to get access to more oil. And several sources are saying that Chinese companies are willing to pay top dollar. You will recall that CNOOC is the same company that attempted to buy Unocal in March 2005. Their overtures were spurned on national security grounds despite the very limited domestic asset base that Unocal controlled and despite their offer being materially higher than Chevron.
I have a couple of takes on this news. First, the Chinese clearly want access to natural resource assets in order to power their domestic growth. Previous attempts to acquire Unocal and and the over-indebted Rio Tinto by Chinese companies proves this. But, these attempts have been met with protectionism and I imagine the Chinese find this extremely frustrating. So, they have decided to look elsewhere for their natural resources.
In my view, the fact that they have met protectionist hackles in the West makes them all the more desirous to acquire good assets outside of developed countries both to power their economy and to reduce dependence on the West. Let’s see if the Repsol deal meets with a protectionist response.