Twin takeovers give China significant UK North Sea oil output
BY ALEXIS FLYNN
LONDON -- Twin takeovers this week are expected to provide China an 11% share of the UK's oil and gas production, dramatically expanding the Asian giant's presence in the country's resource sector.
The deals are the latest in a string of acquisitions aimed at sating China's hunger for foreign energy assets, but unlike past takeovers that have provoked political opposition, the UK government and industry have initially welcomed the companies' investments.
Cnooc, unveiled early Monday, a $15.1 billion deal to take over Nexen, which is the UK's largest oil producer. Within hours, a separate deal was announced by Talisman Energy, which agreed to sell 49% of its UK business to China Petroleum & Chemical Corp., better known as Sinopec, for $1.5 billion.
If both acquisitions pass regulatory and shareholder approval, they would give the state-backed Chinese companies a significant role in the UK oil and gas industry. According to company reports, Nexen and Talisman's net share of production from their fields in the UK in the first quarter of 2012 was respectively 114,000 boed and 132,000 boed, around 11% of the country's total.
Cnooc's acquisition of Nexen would give it a particularly dominant position. Nexen operates the UK's largest oil field, Buzzard, which alone produced 193,000 boed in March, 21% of total UK oil output, according to data from the UK Department of Energy and Climate Change. Buzzard is a major component of the Forties crude system, which in turn, is the largest element of the Brent oil price benchmark. Nexen owns 43% of Buzzard.
Nevertheless, government and industry were quick to welcome the deals and downplayed any risks to the security of the country's energy supply.
"The UK is open for business and actively welcomes inward investment to our energy sector," said DECC in a statement.
Malcolm Webb, Chief Executive of industry body Oil and Gas UK, said the deals were further confirmation of the remaining potential held in the North Sea, which is one of the world's most intensively developed oil and gas basins.
"A diverse range of investors in the province will help maximize recovery of the UK's substantial remaining oil and gas resource, to the benefit of British jobs, tax revenues, export earnings and energy security," said Mr. Webb.
"Collectively, we will invest more in the UK than Talisman would have on its own, leading to a stronger, more sustainable business," said Talisman Chief Executive John Manzoni.
The leader of the UK's main offshore workers' union, Jake Molloy, also welcomed the deals, but stressed the need for the new firms to continue to invest in maintaining the structural integrity of some of the North Sea's oldest offshore installations.
Despite the scale and suddenness of the Chinese acquisitions, the government said the deals would be treated no different to any other. "All operators of UK-based oil and gas infrastructure are required to meet our tough domestic regulatory standards," DECC said.
Paul Stevens, an energy expert at London think tank Chatham House, said fears the deals posed a risk to UK security of energy supply were overblown.
Oil produced by the companies would simply go onto the open market, and wouldn't affect UK supplies any more than if Nexen and Talisman had done similar deals with other foreign firms, he said.
Chinese companies already have a significant presence in other UK resource sectors. In 2010, a Chinese consortium acquired three local UK electricity networks that distribute around a third of the power in the country. Last year, a consortium led by Cheung Kong Infrastructure Holdings bought the UK's Northumbrian Water Group, which provides water and sewerage services to 4.5 million people. China's Guangdong Nuclear Power Holding Company and France's Areva are making a joint bid to develop nuclear power plants in the U.K.
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