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After more than a little hullabaloo, on Friday it was announced that China's CNOOC (NYSE: CEO ) had advanced to first in line in the contest among oil companies to acquire a stake in Ugandan assets owned by Tullow Oil. It appears that China's largest offshore operator will fork over $2.5 billion for the position.
That announcement follows a contest among CNOOC, France's Total (NYSE: TOT ) , and Italy's Eni (NYSE: E ) . The competition involved assets owned by Heritage Oil, which had decided to sell its properties in the Lake Albert area near the country's western border. Initially it appeared that Eni was likely to take the spoil. Indeed, in November, the Italian company announced that it had reached an agreement to pay $1.5 billion for the Heritage stake.
Tullow, as Heritage's partner, was quick to exercise its right of first refusal, blocking the sale and then declaring that it would buy the properties for itself at the identical price. Of the three blocks in the field, Tullow and Heritage shared two, and Tullow owned the third outright.
But the action continued when the Ugandan government objected to Tullow's purchase in order to prevent one company from owning the entire field. Capitulating to the government's wishes, Tullow agreed to bring in another partner on the project that likely will also include a refinery and a pipeline to transport the oil to the Indian Ocean. Although not finalized, it appears CNOOC has won the contest and positioned itself to assist with the steady increase in Chinese interests in East Africa's fertile energy arena.
Uganda expects to produce about 150,000 barrels a day of crude within the next six years. It therefore doesn't have the energy clout of some other countries, including Nigeria and Angola. Those countries have become the province of super-majors, such as Chevron (NYSE: CVX ) , BP (NYSE: BP ) , and ExxonMobil (NYSE: XOM ) .
Nevertheless, Ugandan oil is less expensive to produce than that emanating from more challenging structures, such as the Santos Basin and the deepwater Gulf of Mexico. As such, given CNOOC's new position in the area and its access to the world's deepest pockets, among other things, I'm inclined to double down on my attention to the company.