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:
- Cnooc and BG Group signed a liquefied natural gas project development agreement in May 2009. Under the deal, Cnooc agreed to buy 3.6 million tons of LNG per year for 20 years from BG's Queensland Curtis LNG project in Australia. Cnooc also agreed to become a 10 percent equity investor in the first phase of the project.
- PetroChina signed an agreement with ExxonMobil (XOM) in August to buy 2.25 million tons of LNG annually from the Chevron-led Gorgon LNG venture in Australia.
- Australian gas producer Arrow Energy accepted last month a joint $3.2 billion takeover bid from PetroChina and Royal Dutch Shell (RDS).
- China's state-owned metals company Chinalco and mining giant Rio Tinto agreed last month to jointly develop an iron ore project in Guinea.
- PetroChina agreed in August 2009 to acquire 60 percent interest in Athabasca Oil Sands Corp.'s MacKay river and Dover oil sands projects.