Race is on for the world's remaining resources

The decision by Sinopec of China to pay $1-billion for the right to explore for oil in deep water off Angola has shocked the West, which fears it could be left behind in a global scramble for resources.

Similar oil prospects off the Angolan coast were selling for $35-million less than a decade ago, when Western oil giants such as BP and Shell had the field almost to themselves.

The rising power of oil companies from fast-developing and energy-hungry nations such as China and India has contributed to soaring oil prices. Last week, they hit record highs of $75 a barrel.

‘It’s just like the British housing market. You have a lot of people chasing a few opportunities. The difference with oil is the companies have huge amounts of cash,’’ said Derek Butter, an analyst at energy consultants Wood Mackenzie.

And it is not just Angola that is benefiting. The Nigerian government has sold 16 exploration licences in deep water areas for $500-million and secured promises that the buyers will spend a further $20-billion on infrastructure projects.

Licences have been offered almost everywhere recently: from the Gulf of Mexico to Brazil and Libya. It is only in fast-declining areas such as the North Sea that few of the large companies are really interested, although drilling activity has risen here, too.

The oil grab is also trig-gering a merger and acquisition bonanza. China National Petroleum Corporation recently bought PetroKazakhstan for $4,2-billion, while China National Offshore Oil Corporation caused panic in Washington last year when it tried to buy United States oil group Unocal.

In the past, the forthcoming stock market float of controversial Russian giant Rosneft—expected to be valued at $80-billion—might have been avoided by respectable Western companies fearing damage to their reputation. But BP and others say they might not be able to turn down such an opportunity if the price is right, partly because it would offer vital access to an increasingly protected Russian market.

Russian President Vladimir Putin opened the door for BP to buy -Moscow-based TNK, but has since made it almost impossible for anyone to do a follow-up deal. Most governments in the oil-rich Middle East are even more wary of foreign oil firms.

The growing power of left-wing but nationalistic governments in South America is forcing Western firms to pay more or leave. Bolivia has just requisitioned assets from Repsol YPF of Spain and has increased gas export prices to Argentina by 45%.

The bidding war that has driven up the price of exploration rights in Angola was not just the work of Sinopec. Total of France spent $670-million on a 40% stake in the assets next door on Block 17.

And national oil groups such as Sinopec will be more flexible on how they structure deals. The Korea National Oil Corporation has recently won an area in Nigeria through a barter deal under which fellow Korean conglomerate Daewoo will build a shipyard and railway link. Similarly, the Oil and National Gas Corporation of India has teamed up with steel group Mittal to offer a range of services to Kazakhstan in return for oil rights.

The race for assets has even included territories formerly shunned by the West, such as Libya. The Libyan government attracted better tax terms from Western firms than anyone expected and, Butter believes, the Iraqi government should be able to do the same once peace prevails.

But he says it is wrong to blame national companies from China and India for the inflation that has also hit the price of rigs and staff as shortages develop. ‘While it is true the international expansion of the Asian national oil companies has increased competition for opportunities in some areas, we question the conventional wisdom that they are unfairly dominating the upstream sector and indulging in a ‘win at all costs’ strategy,’’ says Butter. But even he struggles to see how Sinopec can explain the cost-competitiveness of spending $1-billion in Angola.—



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