Chinese Investment in UK Oil Production – August 2012

Summary
China is set to own up to 13 per cent of UK oil production if two new energy deals succeed.

Detail
On 26 July, China National Offshore Oil Corporation (CNOOC) bid $15.1bn for Canada's Nexen, and Sinopec bid $1.5bn for a 49% stake in the UK unit of Canada's Talisman Energy.  If these deals go through, it is estimated China would own up to 13 per cent of all UK oil production, including a 43% stake in the Buzzard oil field.

For the first time, China would have an influence on Brent pricing.  Buzzard is the biggest contributor to the Forties oil blend, one of four North Sea crude streams that make up the Brent oil benchmark.  Forties usually sets the value of dated Brent which is used to price over half of the world's crude. 

Sinopec and CNOOC are two of China's largest state owned enterprises (SOEs) with revenues of US $375bn and US $75bn million respectively.  Sinopec alone is three and a half times the size of Apple (in revenue) and is one of three Chinese SOEs to make it into the top ten of the 2012 Fortune Global 500 list of the world's largest companies.  Yet compared to the likes of Shell, Exxon, BP and Chevron which also fall in the top ten and are household names, the biggest Chinese players (Sinopec, China National Petroleum Corp (CNPC) and State Grid) are relatively little known outside China. 

Drivers of overseas investment

The Chinese government has just released the "12th 5 Year Plan for utilization of foreign investment and overseas investment" which lists "resource related investment" as one of the top priorities for 2011-2015.  China will invest in energy and mineral resource development projects overseas so as to secure long-term stable, economic and safe energy supplies for national growth.