The Wall Street Journal is reporting that Cnooc Ltd., a state-owned Chinese oil company, is close to a deal that would open the U.S. Gulf of Mexico to China’s oil companies for the first time. The potential transaction reflects the impact that the recent recession has had on global deal-making. Four years ago, Cnooc’s abandoned a bid for California-based Unocal Corp. after its overtures created a firestorm of protests from U.S. politicians.
How times have changed.
“As tight credit has caused a lull in spending on offshore exploration, appetite for Chinese capital has grown, and opposition to Chinese investment may be less likely,” writes David Winning. Cnooc is reportedly close to a deal with Norway’s StatoilHydro ASA for multiple leases in the desirable U.S. Gulf of Mexico, a region where billions of barrels of crude are believed to be trapped offshore.
The entrance of a state-owned Chinese oil company into the region is a major development. While it seems that the low point of the recession has passed, the current economic environment remains one of the best buyers’ markets in decades, and the few companies (and countries) with enough cash to continue making deals find themselves with some excellent opportunities. With a thriving economy and massive holdings of Treasuries, some see China as holding all the cards now.
Moreover, the deal could lead to a change in the way China orchestrates deals for Western energy companies seeking to do business within its borders, enabling the government to push for entry into oil fields in developed markets as a component of any bid for a Chinese project.
Although Cnooc’s potential deal with StatoilHydro is a relatively small one, it reflects a larger global trend. ETFs that could get a boost if energy companies from China and other emerging markets continue to gain a foothold in oil-rich regions of the developed world include:
- Emerging Markets Energy Titans Index Fund (EEO): EEO is one of four ETFs introduced by Emerging Global Advisors that focuses on specific sectors of emerging market economies. While emerging market energy companies have been investing in other emerging markets for decades, Cnooc’s move into the U.S. may open the door for emerging market companies to establish themselves in lucrative fields in the rest of the world.
- iShares FTSE/Xinhua China 25 Index Fund (HAO): In addition to significant holdings in Cnooc and PetroChina, FXI invests in several other mega-cap Chinese companies. FXI has posted a gain of more than 80% so far this year as the Chinese economy has raced ahead of the rest of the world.
- iShares S&P Global Energy Index Fund (IXC): If the Cnooc / Statoil deal leads to greater efficiencies and increased opportunities for cooperation in the global energy industry, many of the companies that make up this ETF could benefit. With holdings in energy companies around the world (but primarily those traded in developed markets), IXC has outperformed similar U.S.-only energy ETFs over the last 12 months.
Disclosure: No positions at time of writing.