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China Feeds its Oil Addition by Tapping Libya

Photo Credit: China.cn

Amid China's acquisition exposure in places like Australia and Europe, the nation hasn't stopped soaking up commodities in a world exhibition of industrial assets.  In a recent move, China National Petroleum Corp. is looking to expand its holdings of oil fields to Syria and Libya through a deal between two Canadian firms.

Suncor & Petro-Canada Merger

The $19 billion merger between Suncor and Petro-Canada will free up oil assets that are now deemed “non-core” to the business.  The two are likely to focus on Canada's tar and oil sands, which contain high levels of accessible hydrocarbons.  This will be particularly lucrative should oil prices rise to meet the onslaught of technology and refinery equipment used to bring the oil to the surface.

A Bid of Confidence

China National Petroleum offered as much as $5 billion for various, non-essential assets that the two companies own.  The merger, which will be completed as an all stock takeover, will not require any additional funding for Suncor; however, the two joined firms could have an interest in raising cash.  The $5 billion offer will help bring new technologies to Canada's oil sands and rid the company of expensive foreign operations.

A Deal with Hope

While regulators around the world struggle with China's huge purchases of natural resources, the sale to China National Petroleum will be less contested than others.  At present, Canada is a vast energy exporter and does not need to import oil to offset its consumption.  Likewise, China consumes far more oil than it produces or has within China's borders and will ultimately require more foreign oil to continue day to day operations.  China's most recent investments include $35 billion to secure some 400,000 barrels per day of oil, with 300,000 coming from Russia for the next 20 years and 100,000 per day coming from Brazil for 10 years.

How the Bid Stands

The bid comes just weeks after China National Petroleum was denied a $443 million bid for other oil assets in Libya.  The local government cited a little used clause that allows the nation to block takeovers and buy the assets before a private sale can be made.   The same could be done again; however, many have suggested that the nation of Libya may not be well enough capitalized to handle a $5 billion takeover.

Libya: The Next Great Oil Frontier

Analysts close to the oil industry suggest that Libya may sit on the largest oil and gas reserves in all of Africa.  The underdeveloped nation has few domestic oil companies to access the underground reserves, and very few foreign companies are ever granted access.  In the recent decision by CNP to bid for Libya's assets, it could have been a play to get access to what might be a lottery ticket in black gold.

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