CNOOC Eyes Statoil GoM Assets

CNOOC Ltd. (CEO - Analyst Report) expects to sign a deal with Norway’s StatoilHydro ASA (STO - Analyst Report) soon to buy stakes in some deepwater exploration blocks in the U.S. Gulf of Mexico (GoM).

StatoilHydro is putting five prospects on the market, out of its more than 400 leases in the U.S. GoM. The company had acquired these assets, with 100% working interest, in 2007 and 2008 lease sale. This deal could mark the introduction of China's foray into the U.S. GoM. The GoM remains one of the most abundant areas of the world for oil discoveries, with billions of barrels of crude believed to be trapped beneath the seabed.

Chinese companies are pursuing assets acquisitions abroad to cope with the country’s increasing demand for oil and gas. But they are facing difficulties in tying up deals partly because the oil-rich countries want greater control over their resources.

We view this deal as a positive for CNOOC following the company’s aborted $18.5 billion bid for California-based Unocal a few years ago. But we are watchful too as CNOOC's decision to take part in the U.S. offshore oil and gas sector may dig up the challenges it had faced in expanding its overseas operations, especially in Africa.

CNOOC’s partnerships with international companies have enabled it to develop the skills and knowledge to conduct independent E&P operations. The company’s increasing overseas exposure is reflected by its recent bid 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.

We believe that the commencement of major projects, attractive overseas investment initiatives, solid production outlook and satisfactory exploration results act as catalysts for the company’s growth trajectory. Consequently, we maintain our Outperform rating.