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China building up a position in BP

A Chinese sovereign wealth fund is at it again, now buying a stake in BP, the UK's largest corporation. However, this was neither good nor bad news for BP, which welcomed shareholders of any kind.

The lure of other oil companies

The Chinese government has also taken a stake in Total SA, which is the third largest European oil producers. While BP welcomed investment, the CEO of Total SA was wary of letting governments target its assets. Total SA would like to keep government investment through sovereign wealth funds down to just 3% of the company.

China needs more and more oil to continue to expand; its future investment in oil fields and companies can be seen as a way to direct more oil to its shores. If China were to attempt a takeover of BP, it could merge its assets with its own Petrochina to form one large oil conglomerate, and then forward the oil to its own country.

No takeover yet

At this point in time, there is little to worry about for the rest of the world. China’s stake in BP is less than 1% of the overall share count and less than 1.5% of Total SA, – well out of reach for a takeover. Although the news is a bit unsettling, considering that the fund is building stake in other oilers around the world, Chinese investment is still too low to consider a takeover threat.

In the future, this could be good news for Petrochina, which trades on the NYSE under the ticker PTR. If the assets of the sovereign fund are mixed with Petrochina, the company stands to make a huge gain from the cheap assets. Either way, China is certainly starting to get their foot in the door of world oil output.

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