CNOOC Challenges Exxon in Ghana

Following ExxonMobil’s (XOM - Analyst Report) agreement last week to buy Kosmos Energy’s stake in oil blocks of the Jubilee oil field -- offshore of the West African country of Ghana -- for approximately $4 billion, China National Offshore Oil Corporation, or CNOOC (CEO - Analyst Report), now makes a rival bid. CNOOC is in advanced talks with the Ghana National Petroleum Corporation, or GNPC.

Earlier, many oil majors had shown interest in this deal, including Royal Dutch Shell (RDS.A - Snapshot Report) and BP plc (BP - Snapshot Report). While the Chinese government is keen to secure access to more of the world's oil, the Ghanaian government wants to be a larger participant in Jubilee.

The Jubilee region is emerging as a major new oil region, and Ghana is expected to be an oil exporter by the end of next year. The Jubilee field, discovered in 2007 off the coast of Ghana, could potentially hold 650 million barrels to 2 billion barrels of oil equivalent. It also holds the type of light, sweet crude oil that is most sought after by global markets.

We view this rival bid as a significant challenge to the dominant position of western oil majors such as ExxonMobil. CNOOC’s partnerships with international companies have enabled it to develop the skills and knowledge to conduct independent E&P operations. Moreover, the company is backed by a government flush with foreign currency as well as a growing desire to secure long-term access to commodities.

In addition, CNOOC’s overseas production is gaining momentum with a host of successful oilfields in Nigeria and Indonesia. With few promising exploration prospects left, the Jubilee oil field would play a leading role in the company’s upstream growth.