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CHINA: China Shows High Interest in African Oil

by Benoit FauconWall Street Journal
November 22nd, 2007

China's Cnooc Ltd. is considering buying interests in Nigerian blocks held by Royal Dutch Shell PLC, a person familiar with the matter said yesterday -- the latest indication of China's rising assertiveness in Africa's oil sector.

Shell is considering selling interests in two Nigerian offshore blocks as it restructures its business in the troubled region, people familiar with the matter said Tuesday. A block is a geographic area of territory over which the owner holds exploration and drilling rights.

The Anglo-Dutch oil company has said it expected to sell about $9 billion in assets in 2007.

A Cnooc spokesman declined to comment.

The block stakes, each amounting to 49.8%, could fetch as much as $900 million, a person familiar with the matter said, adding that Nigerian oil companies had also expressed interest. Agip, a unit of Eni SpA, holds the remaining 50.2% in each block.

In January 2006, Cnooc, China's largest offshore operator by output, bought a 45% interest in Nigeria's Akpo field for $2.27 billion. The same month, it bought a 35% interest in the license to explore for oil in a Nigerian offshore block.

China is on course to overtake the U.S. as the world's largest energy consumer soon after 2010, according to the International Energy Agency, but its domestic oil production is set to peak around the same time, leaving a supply gap that will have to be filled by foreign oil. As a result, Chinese oil companies are investing massively in Africa, searching for oil to fuel the country's booming economy.

China Petroleum & Chemical Corp., known as Sinopec, paid $692.2 million for stakes in three deepwater oil blocks in Angola last year. China National Petroleum Corp., the parent company of PetroChina Co., has interests in Sudan.

In addition to direct investments by oil companies, China's government has used a strategy of offering loans and aid to African countries to secure access to resources.

Separately, Shell said it signed a preliminary deal to buy a stake in Regal Petroleum PLC's Ukrainian unit for $50 million in cash and a commitment to pay field expenditures, underscoring the Anglo-Dutch oil company's focus on Ukraine as it tries to expand its foothold in the oil and gas-rich former Soviet Union.

The deal comes on top of other acquisitions the Anglo-Dutch oil major made in the country, as it seeks to regain lost ground after losing control of its key Sakhalin-2 oil and gas project in the Russian Far East earlier this year.

Under a memorandum of understanding, Shell has agreed to buy 51% of Regal Petroleum (Jersey) Ltd., a Regal subsidiary that indirectly holds gas and condensate field licenses in Ukraine. As part of the deal, Shell also committed to spending $360 million to develop the fields, which would be jointly owned by Shell and Regal.

Shell said the deal is subject to due diligence and "final transactional documentation." Regal stressed that the signing of the Shell memorandum of understanding "does not imply that any transaction is certain to occur."

The tentative agreement drove up Regal shares by 10% in early trading, but the stock had fallen 7.8% to £1.59 ($3.29) in late trade in an overall lower London market. Regal's shares haven't fully recovered since the company announced in May 2005 that a promising well in Greece wasn't commercially viable, driving the stock down 60% at the time.

Shell's shares were up 1.9% at £20.23 on the London Stock Exchange.



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