CNOOC-Nexen deal seen helping China's South China Sea thrust

Fri Aug 3, 2012 3:45pm EDT
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By Paul Eckert

WASHINGTON (Reuters) - The $15 billion bid by China National Offshore Oil Corp (CNOOC) to buy Canada's Nexen, Inc will help the Chinese state giant gain the expertise to drill in deep, disputed waters of the South China Sea without relying on risk-averse foreign firms.

The acquisition of Nexen NXY.TO -- which faces reviews by both the Canadian and U.S. governments -- will not be an instant game changer, however, because deepwater technology will take years for China to master, say experts on China's energy sector.

CNOOC, parent of Hong Kong-listed CNOOC Ltd (0883.HK: Quote), has emerged as a key component of China's strategy to bolster its claims to nearly the entire South China Sea. The vast body of water, believed to hold rich oil and gas reserves, is also claimed in part by Vietnam, the Philippines, Taiwan, Brunei and Malaysia.

China's policy has also included diplomatic pressure aimed at keeping the 10-member Association of South East Asian Nations (ASEAN) divided over the sea dispute; the establishment of a city government and military garrison at Sansha city in the Paracel Islands; and more assertive patrols of contested seas.

The intensifying squabble in waters that carry $5 trillion in annual trade drew a statement of concern on Thursday from Washington, which officially is neutral on the dispute.

"The nations of the region should work collaboratively and diplomatically to resolve disputes without coercion, without intimidation, without threats, and without the use of force," said Patrick Ventrell, a State Department spokesman.

CNOOC become more deeply involved in China's South China Sea strategy in late June when it invited foreign firms to bid on oil blocks that overlap territory being explored by Vietnam. Earlier CNOOC unveiled the Haiyang Shiyou (Offshore Oil) 981 rig, China's first domestically made ultra-deepwater rig.

The CNOOC tender drew a protest from rival Vietnam's Petrovietnam, and most analysts expect that international majors -- private Western firms who monopolize the technology to drill in deeper water -- will shy away from investing in contested waters.   Continued...

A woman walks into the Nexen building in downtown Calgary, Alberta, July 23, 2012. REUTERS/Todd Korol