China's Oil Hunger Hits $15 Billion in Canada Amid U.S. Diet Deals

The head of China's Sinopec was recently seated next to Chesapeake Energy CEO Aubrey McClendon at an NBA Finals game. Chesapeake Energy is looking to sell billions in shale assets as a way to meet a $10 billion-plus funding gap this year. There have been reports that the recent visit by Sinopec's CEO Fu Chengyu to Chesapeake's hometown of Oklahoma City was the prelude to an asset acquisition.

Estimates for the potential oil and gas trapped in Chinese domestic shale vary, but there are expectations that the Chinese energy companies will develop in the coming years a significant domestic shale drilling industry.

Unlike many Chinese acquisitions and joint ventures focused on assets in one drilling region or at least one country, Monday's acquisition of Nexen provides CNOOC access to oil and gas assets around the world, including in Canada, West African countries, and access to prized U.S.-based Gulf of Mexico deepwater and continental shale drilling opportunities.

Cannacord Genuity analyst Phil Skolnick said the market is likely to see this as a positive indicator of the ability of Talisman Energy(TLM) to be acquired given it has a mixture of international assets (TLM's Asia assets in particular are potentially of interest). However, he noted that Talisman lacks the oil sands exposure of Nexen, which on its own makes Nexen a more attractive target. On Monday, Talisman announced that it was selling a 49% stake in its U.K. North Sea business to Sinopec for $1.5 billion.

Monday's deal could lead to a new round of regulatory hurdles for Chinese operators looking to gain control of U.S. assets -- Nexen owns assets in the Gulf of Mexico -- after regulatory authorities and Congress blocked CNOOC's $18.5 billion bid for Unocal in 2005. Still, there are those who believe the political resistance to outright acquisitions of North American assets by Chinese energy companies never made sense.

"The Unocal bid was derailed by negative press and myopic rhetoric by a few ignorant politicians," says Fadel Gheit an oil and gas analyst with Oppenheimer & Co., who notes that in the aftermath of the deal breakup, the country has remained a large U.S. energy investor. "CNOOC has invested in unconventional JVs with US independents, which benefit both and should increase our domestic production," adds Gheit. The analyst believes Chinese firms should be able to invest more freely in the U.S. since oil is a global business.