Why do international oil companies partner with Chinese NOCs?

CNPC’s purchase of a Kazakh oil producer is only the latest in a long series of similar deals around the world, going back years now. As we noted today, one of the newer features of China’s overseas oil deals is that it is becoming more interested in partnering with international oil companies, or IOCs. The advantages are fairly clear for China: access to technology (in which IOCs tend to outpace their state-owned counterparts),

But what’s in it for the oil majors? As our story notes, there are the usual attractions of doing business with China: it has cash, and it has huge markets. Cash-rich partners are always welcome, of course, but the international oil companies are relatively flush at the moment (although maintaining dividends and extracting oil from ever-more difficult sources means they cannot afford to be relaxed about this). And markets? Yes they’re huge, but they’re also incredibly difficult for foreign companies to operate in and probably will be for some time. I spoke to several analysts and none of them believed the Chinese national oil company (NOC) market was a particularly attractive one unless it’s part of a long-term play.

A few foreign retailers have ventured into the Chinese retail markets, notably Total which has spoken quite bullishly about its optimism there. But despite the opportunities, general interest from international oil companies is limited (my colleague Ed Crooks wrote in December about a rather grand-sounding speech by BP chief executive Tony Hayward in Beijing, but notes that BP’s actual investment there has been tiny and mainly limited to a few petrochemical plants and a couple of public science museum projects).

Some countries, such as Iraq, that are offering access to their oil reserves prefer to have an international oil company involved rather than an NOC-only project.

International oil companies often partner with each other on these projects to share the technical knowledge, costs and, in politically sensitive areas, the risks. China can be an attractive partner because it has access to cheaper resources (steel costs, for example, can be a significant component of new drilling) and is not shy of politically sensitive areas.

Neil McMahon, an analyst at Bernstein Research says: “They’re doing it from a point of view of outsourcing, cost of security and better deals associated with labour costs, steel and drilling.”

Chinese groups court west for partnerships (FT)
China, Kazakhstan Ink $10 bln Loan for Oil (Oil and Gas Eurasia)

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