Asia Times: Investors courting China's CNOOC


	November 10, 2000	atimes.com

Special Reports

Investors courting China's CNOOC
By Tony Allison

State-run China National Offshore Oil Co Ltd (CNOOC Ltd), one of the country's three largest oil companies, will float stocks in Hong Kong and New York early next year. The size of the initial public offering (IPO) is uncertain, but the company is expected to offer a 25 percent stake for US$1 billion to $2 billion.

CNOOC, established as the listing vehicle of China National Offshore Oil Corp, had planned an IPO on the New York stock exchange in late 1999 but it was cancelled after the company failed to agree on an opening share price with its underwriters Salomon Smith Barney, and through lack of investor interest in Old Economy oil stocks. CNOOC had hoped to raise $1.8 billion from that sale.

The company will most likely structure next year's IPO similarly to its previous attempt with new shares equal to 25 percent of the enlarged share capital being offered to the public. This time, however, the Chinese government will seek to sell some of its shares in the company alongside the new share issue.

Most of the funds raised will be used in the construction of exploration projects, the acceleration of the company's natural gas development projects and the development of offshore fields. CNOOC is China's third-largest oil and gas producer after PetroChina and Sinopec.

Second time lucky?
It was reported in August this year in London that the Royal Dutch/Shell Group had signed a memorandum of understanding to invest up to $400 million in CNOOC's offering. Subsequently, Shell Chemicals, a member of the Royal Dutch/Shell Group, signed a joint venture agreement with CNOOC worth $4 billion to participate in a petrochemicals project in southern China.

Oil major BP Amoco this week was also reported in Beijing to be in consultation with CNOOC over possible participation in the IPO. A CNOOC official is quoted as saying the two companies were in talks for the investment of about $200 million. As with the reports of Shell's interests in the IPO, observers say that BP's involvement could help it secure its bid to build China's first liquefied natural gas (LNG) project.

CNOOC holds a majority stake in the proposed LNG project in Shenzhen. BP Amoco is among four consortiums that have been shortlisted to take a 30 percent stake in the 3 million ton capacity terminal and trunk LNG pipeline, with an estimated cost of $870 million. The project is 64 percent owned by a mainland consortium led by CNOOC.

The other bidders are Royal Dutch/Shell, and two consortiums led by United States-based oil giant Exxon Mobil and the Woodside Petroleum group of Australia. The result of the bidding is expected by the end of the year.

Should BP take a stake in CNOOC, it would follow those of its 2 percent pieces of Petrochina and China Petroleum & Chemical Corp.

CNOOC has been tapping strategic investors since early this year through two rounds of private placements totaling $460 million. The first round, valued at $210 million, was placed to investors who included the Government of Singapore Investment Corporation (GIC) and the American International Group (AIG) Asian Infrastructure Fund.

Of the $250 million second round, $200 million came from Hutchison Whampoa Ltd and Hong Kong Electric Holdings Ltd, and $50 million came from a consortium made up of CDC Partners and the General Enterprise Management Services Ltd.

Record profits
CNOOC monopolizes most of China's offshore oil and gas output. It produced 249,400 barrels of oil equivalent per day in the first half of 2000, up 25.1 percent from 1999. The company's net profit rose 204.8 percent to $593.8 million in the first half of 2000 over the same period of the previous year.

The increases resulted from high international oil prices and an almost 50,000 barrel per day increase in output with new oilfields in Bohai Bay and the South China Sea coming onstream.

CNOOC has also struck oil in five exploration joint ventures this year, and these are expected to come on line over the next few years. The company predicts production will grow 20 percent per year over the next five years, reaching 548,000 barrels per day in 2005.

The company is also taking steps to reach retail markets for the first time. It will study retail opportunities in southern China for LNG, liquefied petroleum gas (LPG) and compressed natural gas (CNG), and it wants to make strategic investments in gas-fired generation plants. One large project aims to build a trunk gas pipeline along the coast from Hainan Island to cities in the far north.

CNOOC has said it will offer new blocks for oil and gas exploration and development in early 2001 as part of a move to further open the sector to foreign investors. The new blocks will be located in the East China Sea, Southern Yellow Sea and deep-water areas in the South China Sea. China's offshore sector has attracted $7 billion of foreign investment since it opened to outsiders in 1982.

CNOOC was incorporated in 1982 and has signed approximately 145 oil contracts with 70 oil companies from 18 countries and regions and attracted nearly $7 billion in foreign investment. CNOOC has established cooperation ties with nearly all oil majors.

Previous energy listings
China's other two state-owned oil giants, PetroChina of the China National Petroleum Corp (CNPC) and Sinopec Co Ltd under China Petrochemical (Group) Corporation (Sinopec), went public in April and October respectively.

PetroChina, listed in Hong Kong and New York, has picked up about $3 billion. Sinopec Co Ltd - the country's first state-owned conglomerate to go public in Hong Kong, New York and London simultaneously - raised $3.7 billion in its IPO.

In late 1999, CNPC set up a holding company, PetroChina, for the purpose of raising money on international capital markets. PetroChina includes most CNPC productive assets, but excludes its network of employee-support functions and some controversial projects, such as CNPC's holdings in Sudan.

Major player
CNOOC explores for, develops, and produces oil and natural gas offshore of China. It has the exclusive right to enter into production sharing contracts with international oil and gas companies to conduct joint exploration and production activities offshore of China and to sell such petroleum in China.

The company predicts its annual oil and gas output will reach 40 million tons in 2005. CNOOC will increase its natural gas output to 10 billion cubic meters per year by 2005, significantly more than current output of 4 billion cubic meters.

The company plans to establish an integrated natural gas pipeline network in China's coastal areas, including the Hong Kong and Macao Special Administration Regions, within the next 10 years. CNOOC is additionally looking to expand its downstream operations in chemicals and fertilizer liquefied natural gas.

CNOOC possesses total proven natural gas reserves of 4.56 trillion cubic meters in Chinese offshore areas. The central government has decided natural gas should play a bigger role in fulfilling the country's energy needs, as it pollutes less. Natural gas's proportion in the energy consumption mix is expected to rise to around 8 percent in the next 10 years. It currently accounts for 2.2 percent.

In January CNOOC announced it will invest $556.2 million this year to open up some major offshore oil fields. Newly discovered offshore oil and gas fields have been found to contain plentiful oil and gas reserves. These include Penglai 19-3, Fanyu 5-1, Caofeidian 11-1, Bozhong 29-4 and Bozhong 25-1, which are located in Bohai Bay, the South China Sea and elsewhere in the region.

Biggest-ever joint venture
In October this year CNOOC signed a deal with Shell Chemicals, a member of the Royal Dutch/Shell Group, to invest in a $4 billion petrochemical project in Guangdong province in the Chinese company's official initiation of downstream businesses. It will be the largest Sino-foreign joint venture ever in the country.

The complex will be located at Daya Bay Economic and Technical Development Zone in Guangdong Province. The joint venture partners consist of Shell Nanhai BV with 50 percent shareholding and CNOOC Petrochemicals Investment Ltd (CPIL), with the other 50 percent. The newly established joint venture will be called CNOOC and Shell Petrochemicals Co Ltd.

Major construction work for the project is expected to kick off in early 2003 and be put into operation in 2005. The joint venture is expected to produce about 800,000 tons of ethylene and 2.3 million tons of high-grade petrochemical products every year and its yearly sales will reach $1.7 billion after entering into full production.

The products will mainly be marketed in Guangdong province and China's coastal areas, where the economy is more developed.

(Special to Asia Times Online)

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