A Chinese bid to muscle in on one of the world's wildest oil frontiers has set the stage for a potential battle between the West's energy giants and the firms charged with feeding China's ravenous energy appetite.
China National Offshore Oil Corp., which has already bought $13-billion (U.S.) worth of international oil assets this year, has now set its sights on a massive chunk of Nigeria's oil-rich waters.
A document leaked to London's Financial Times illustrates the scale of CNOOC's ambition. China's third-largest energy company has its eye on 23 offshore blocks that could contain as much as six billion barrels, or 17 per cent of Nigeria's reserves.
A CNOOC deal for that vast property could be worth $30-billion, according to the Times, and would stand as China's most significant foreign oil acquisition.
The problem is that 16 of those blocks are currently operated by Royal Dutch Shell PLC, Chevron Corp., and Exxon Mobil Corp. Some are already in development and producing oil. But the leases have become a point of contention with the Nigerian government, which has said they expired last November. Chevron and Exxon won 12-month extensions - meaning their leases are up in a month - while Shell is fighting its lease expiry.
Foreign oil companies have already seen their Nigerian production damaged by a long series of violent militant attacks, and the CNOOC bid has the potential to significantly further disrupt their operations in the country.
"Any attempt by the Nigerian federal government to hand key assets to China would cause further deterioration in relations between the Nigerian government and the international oil companies," Thomas Pearmain, Africa energy analyst with IHS Global Insight, wrote in a research report.
Underlying the Chinese bid is a series of wide-ranging oil reforms being drafted by the Nigerian government, which wants higher royalties and taxes - and the right to impose those terms on decades-old production-sharing contracts.
That proposed new regime would likely hurt Western companies, but Chinese firms "may be able to absorb the less attractive terms due to them being backed by the state, as long as it improves the country's energy security over the long term," Mr. Pearmain wrote.
Nexen Inc., the only major Canadian company with an interest in offshore Nigeria, has a 20-per-cent share in three leases operated by French giant Total SA. A spokesperson for Nexen said the company did not know whether theirs are among the blocks CNOOC is pursuing, and declined comment.
Nigerian officials confirmed Tuesday that they have engaged in talks with several Chinese state firms. But, they said, the foreign-owned blocks were not put up for sale - the Chinese simply wanted them.
"We are not offering leases that are up for renewal in the middle of negotiations to renew. This is not happening," Nigeria's oil minister Odein Ajumogobia told Reuters.
Some analysts and industry executives have, however, speculated that the Chinese bid was a negotiating tactic aimed at prodding Western companies into boosting their own bids - a theory given credence by Tanimu Yakubu, economic adviser to Nigerian President Umaru Yar'Adua. CNOOC is "really offering multiples of what existing producers are pledging [for licences] ... we love to see this kind of competition," he told the Times.
Yet analysts say an interest in Nigeria also fits with China's strategy in Africa, where it has aggressively pursued crude alongside investments in schools and roads. China has already won a 45-per-cent stake in Nigeria's offshore Akpo field in a $2-billion infrastructure and energy deal, and the country's firms have made deals of the same size or bigger in Sudan and Angola, with smaller ones in Algeria, Libya and Zimbabwe.
Nigerian oil makes sense to China from both a geographic and crude-quality standpoint, said Stephen Jones, a vice-president with international energy consultancy Purvin & Gertz.
"Production out of Nigeria has typically been a higher-quality barrel, and it's certainly a pretty decent location from the standpoint of the Chinese," he said. "It's a little bit closer than having to do deals with Venezuela for worse-quality crude."
With files from Reuters