A New Diet for China's Energy Appetite

 | Dec 10, 2012 | 12:30 PM EST  | Comments
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The Canadian government's final approval of the CNOOC (CEO)-Nexen (NXY) deal is important in that it may be the last time Chinese energy companies are in the limelight for a major energy buy. The long approval process of this $15.1 billion deal may have convinced the Chinese that they're better off staying under the radar to satisfy their insatiable appetite for resource assets -- an appetite that will continue in 2013.

The approval of this enormous energy deal is probably best thought of as the right bookend to CNOOC's failed 2005 effort to buy now-defunct U.S. producer oil Unocal. With Nexen, the Chinese oil conglomerate gets a mix of assets, including interest in various traditional Canadian and non-traditional oil sands assets, as well as interests in the Gulf of Mexico in the U.S. and the North Sea in the U.K.

But the long battle for government approval was difficult and uncertain, and probably convinced CNOOC (as well as other Chinese mega-cap integrateds, like Sinopec (SHI)) that a joint-venture investment -- without battling over national resource issues -- is the way to go in the future. The Chinese have proven that they don't need to own 100% of any company's assets to satisfy their appetite for future energy supply.

CNOOC is a perfect example. It has entered into partial investments and joint ventures in excess, mostly under the radar of government and investor interest. The deals are wide-ranging: Australian producer Exoma, Argentinian producer Bridas, and U.S. natural gas giant Chesapeake Energy (CHK). There's even a fully separate division to house joint ventures with Royal Dutch Shell (RDS.A). None of these deals requires any government approval, or even shareholder approval.

Besides the consternation that you might feel seeing this trend of Chinese mega-caps swallowing domestic energy assets continuing or even accelerating, there's little to be gamed. Even if you know that Chinese energy companies continue to search for deals, you're still facing a tough task determining where they're likely to go next. You could assume that they will add from the assets of companies where they've already had successful joint ventures, like Chesapeake (always looking to make another deal), or Canadian energy producer Talisman Energy (TLM). Or, you might take a chance on their looking at undervalued energy producers under corporate duress, like SandRidge Energy (SD).

But you'd be making nothing more than a guess. The only thing you can be sure of is that this trend of Chinese asset purchases is likely to continue. Their appetite seems unquenchable.

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