The Chinese May Be Drilling at Your Doorstep

China's offshore-oriented CNOOC (NYSE:CEO) continues to try to thread its way into offshore venues in a variety of places. Let's start with the U.S. Gulf of Mexico; the company is in talks to acquire leaseholds there from Norway's StatoilHydro (NYSE:STO).

Thus far, the talks haven't led to a deal, but should that occur, any subsequent activity by CNOOC in the Gulf would represent the first instance of Chinese oil companies plying their trade in U.S. waters. Indeed, the closest they've come was CNOOC's $18.5 billion bid for Unocal four years ago. The bid was withdrawn on the basis of political complaints in the U.S., and Unocal is now owned by Chevron (NYSE:CVX).

Statoil has assumed a rather laid-back attitude toward its talks with CNOOC. According to the Norwegian company, it's simply maximizing its portfolio by providing information on leases it acquired in sales during the past two years and in which it now has sole ownership.

It wasn't long ago that the Gulf of Mexico was looking moribund. But as the operators have moved rigs to deeper waters, the successes have increased. For instance, as you may know, early last month a group comprising BP (NYSE:BP), Brazil's Petrobras (NYSE:PBR), and ConocoPhillips uncovered a "giant" discovery there in 4,132 feet of water. The well, which has been named Tiber, was drilled to a total depth of 35,055 feet, making it likely the deepest well on record.

At the same time, CNOOC recently jousted with ExxonMobil (NYSE:XOM) for the opportunity to purchase from Dallas-based Kosmos Energy nearly a quarter of the big Jubilee field offshore Ghana. The field, which was discovered by Anadarko (NYSE:APC), and others, is thought to contain about 1.8 billion barrels of oil. It may be at the eastern edge of a structure that runs about 700 miles to the west.

In fact, earlier this month, a group comprising Anadarko, Repsol, Tullow Oil, and Australia's Woodside Ltd. discovered oil offshore Sierra Leone, near what could be at the western extremity of that structure.

It will be interesting to follow the trail of increasingly active CNOOC. While it appears that Kosmos' Jubilee interest will go to Exxon in exchange for $4 billion, I wouldn't sell CNOOC short vis-a-vis its ability to spread itself into the Gulf or elsewhere. This is an intriguing company. Keep an eye on it.

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