2009-07-27

Mapping the Overseas Expansion of China's Three Oil Giants

Interactive Map: China Oil Goes Global

Note: The above map in not an exhaustive list of all of the overseas oil and gas projects that the three Chinese oil giants have a stake in , but rather a visual guide to the surge in acquisitions that has taken place in the first six months of 2009. The map includes deals that were finalized before mid-July but does not include, for instance, CNOOC and Sinopec's recent investment in an Angolan oil field.

With Sinopec's recent ＄7.2 billion acquisition of oil explorer Addax Petroleum and rumors flying that China National Petroleum Corp is about to acquire a large stake in Argentinian drilling company YPF SA, it's obvious that China's oil companies really are starting to "Go Global."

The Chinese oil giants have adopted an increasingly flexible and pragmatic strategy, expanding both the scope of the regions that they're targeting and also utilising more varied methods when acquiring foreign companies and resources.

By aiming at companies whose business are complementary to their own, the oil companies are attempting to become fully-integrated, internationally-competitive global players.

Potential Risks

However, China's oil giants global expansion is a risky business.

First of all, by purchasing low-return shares at a very high premium, they've opened themselves up to liquidity risk in the future.

Also, the recent jump in global oil prices is likely to lift transaction costs and cause problems for future negotiations.

Moreover, most of the already acquired assets are located in politically sensitive and unstable regions, such as Iraq and North Africa.

Finally, if during the process of this overseas expansion, China’s oil companies fail to coordinate with each other, there is the risk that they may end up competing against each other for resources.

Correction: When originally published the map contained two errors - we've since reacquainted ourselves with the true location of Ghana and have also scaled down Addax's daily outout from 1,365,000 barrels a day to the correct 136,500 barrels a day.

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