Sinopec-Conoco: China Conquers the Energy World, One JV at a Time

Last Updated Apr 14, 2010 1:16 PM EDT

China learned a valuable lesson back in 2005 when its state-owned offshore oil company Cnooc bid for U.S.-based Unocal. Politicians -- and regular folks, too -- flew into a nationalistic, security-fearing frenzy so great that they put a kibosh on the whole deal. Now five years later, China is taking a different approach: the joint venture.

Case in point: China Petrochemical, or Sinopec, announced this week it will buy ConocoPhillip's (COP) 9 percent stake in the Syncrude Canada oil sands project for $4.65 billion. The acquisition highlights China's hunger for energy assets -- it paid at least $650 million more than Macquarie Securities estimated the stake was worth. It's also another example of China's new favorite tactic for securing those assets: buying minority stakes in projects or partnering with foreign firms instead of buying things outright.

Chinese companies spent $64 billion on mining and energy acquisitions since 2005, including stakes in oil fields, coal and metal mines all over the world -- half of that in 2009 alone. Many of these acquisitions were joint ventures, which let China secure access to energy resources all over the world without raising the hackles of foreign governments.

China isn't the only beneficiary in these joint ventures. Western oil companies partnering with China know they have a reliable money source since Chinese energy firms -- most of which are owned by the state -- have direct access to government coffers. China is also less likely to shy away from investing in environmentally contentious energy resources, such as the Canadian oil sands.

China's joint partnerships have run the gamut, including liquefied natural gas in Australia, an iron ore project in Guinea and oil sands in Canada. And the country isn't slowing down. Just one month after Cnooc made its largest overseas acquisition by purchasing a $3.1, billion stake in Bridas, Argentina's largest oil exporter, its chairman outlined plans to buy more oil and gas assets.

Oil sands, which are expensive and time-consuming projects to develop, will continue to be part of China's long term strategic planning. Back in 2005, Sinopec bought 50 percent of Total's stake in the Northern Lights oil sands project. And as long as crude continues to trade above $80 barrel -- a price that offsets the cost of developing the expensive projects -- expect more joint ventures like the recent Conoco-Sinopec deal to unfold.

Here are a few of China's joint ventures in the past year:

Photo of Chinese flag from Flickr user peruisay, CC 2.0