China's Majors Seek Technology to Drive Unconventional Growth
Chinese oil majors are set to accelerate their overseas buying spree in unconventional oil and gas assets, with an eye on technology key to help shift China's reliance on coal to lower-carbon fuel over the next decade.
Such technology will be critical for China to boost energy security and tap its own potentially vast unconventional gas resources -- part of the drive by the world's fastest-growing major economy to triple gas use -- as Chinese firms lack the expertise.
PetroChina, Sinopec and CNOOC have poured billions of dollars into overseas acquisitions over the past decade.
The latest trend is that they are giving priority to technology of developing unconventional reserves, such as tight gas, coal bed methane (CBM), shale gas and oil sands, as well as deep-water drilling, bankers and analysts say.
"In the case of China, I don't think they are purely interested in becoming operators for the sake of additional resources," said Peter Gastreich, executive director at UBS in Hong Kong.
"What they are really interested in now is more on the technology side with the aim of applying this expertise to China," he added.
Chinese energy giants may take strategic stakes in firms such as Canada's Encana to acquire expertise -- often at a premium -- that they can utilize domestically, while raising their exposure to the long-term shale/oil gas boom in North America, analysts said.
PetroChina's $5.4 billion deal with Encana, announced last week, is the largest Chinese investment yet in a foreign natural gas asset.
Deals with shale gas producers such as Chesapeake Energy, after CNOOC struck its second shale deal with the U.S. firm in January, are also highly likely with many U.S. firms thirsty for cash, bankers and analysts said.
Oil services firms such as Carbo Ceramics that focus on hydraulic fracturing, a critical process needed for developing unconventional gas, may also be targets, analysts said.
"China is at the start of a gas revolution," said Neil Beveridge, analyst at Sanford C. Bernstein in Hong Kong.
Jie Mingxun, PetroChina CBM's President, said on Wednesday it is open to foreign mergers and acquisitions, provided there is an adequate technological need and the right economic environment. Regardless of size, companies with specific, required technology would likely be targets. (Read More HERE)
Chinese firms are hoping to learn how to develop the fields, optimize drilling techniques and well design, said Peter O'Malley, HSBC's Head of Resources and Energy Group for Asia-Pacific.
The speed of the technology transfer from foreign firms to China's state-owned energy giants is likely to be a matter of many months rather than many years, O'Malley said.
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