An odd thing happened this week: for obvious reasons, Russian usage of the Chinese yuan has been booming in recent weeks, with the Nikkei reporting that Russia boosted yuan holdings over dollar just before the invasion (having previously dumped all of its Treasury holdings all the way back in 2018 telegraphing what was coming to anyone who was paying attention), and even though Chinese trade with Russia has soared...
... many Chinese companies had refused to side fully with Russia, amid concerns that they would be swept up in various secondary sanctions should the increasingly erratic Biden administration decide to lash out at Beijing.
That's not the odd thing, in fact it is to be expected: after all, if you go after the king - in this case the king of global reserve currencies, the dollar, you better not miss and according to most experts, China is nowhere near ready to dethrone the US as the world's biggest superpower (with or without the assistance of Russia). What was odd, is that Reuters reported that China's top offshore oil and gas producer CNOOC, was preparing to exit its operations in Britain, Canada and the United States, because of concerns in Beijing the assets could become subject to Western sanctions, industry sources said.
In other words, one of China's largest and most important companies has decided to pull the plug before it absolutely has to, in what appears to be a clear indication that what comes next will be very troubling.
The United States said last week China could face consequences if it helped Russia to evade Western sanctions that have included financial measures that restrict Russia's access to foreign currency and make it complicated to process international payments. Additionally, the US has also made very clear that any Chinese invasion of Taiwan will result in an identical response to that faced by Russia now. The implication: one of those two things may be about to happen.
Some background: according to Reuters, while companies periodically carry out reviews of their portfolios, the exit being prepared would take place less than a decade after state-owned CNOOC entered the three countries via a $15 billion acquisition of Canada's Nexen, a deal that transformed the Chinese champion into a leading global producer. The assets, which include stakes in major fields in the North Sea, the Gulf of Mexico and large Canadian oil sand projects, produce around 220,000 barrels of oil equivalent per day, Reuters calculations found.
However, it now appears that CNOOC has had enough, and last month, Reuters reported CNOOC had hired Bank of America to prepare for the sale of its North Sea assets, which include a stake in one of the basin's largest fields. That's just the start, however, and Reuters adds that CNOOC has launched a global portfolio review ahead of its planned public listing in the Shanghai stock exchange later this month that is aimed primarily at tapping alternative funding following the delisting of its U.S. shares last October. CNOOC is also taking advantage of a rally in oil and gas prices, driven by Russia's invasion of Ukraine on Feb. 24, and hopes to attract buyers as Western countries seek to develop domestic production to substitute Russian energy.
As it exits the West, CNOOC is looking to acquire new assets in Latin America and Africa, and also wants to prioritize the development of large, new prospects in Brazil, Guyana and Uganda, the Reuters sources said.
Even before its exit, CNOOC faced hurdles operating in the United States in particular, such as security clearances required by Washington for its Chinese executives to enter the country.
"Assets like Gulf of Mexico deepwater are technologically challenging and CNOOC really needed to work with partners to learn, but company executives were not even allowed to visit the U.S. offices. It had been a pain all along these years and the Trump administration's blacklisting of CNOOC made it worse," said the source.
And just to make it even clearer what's coming, in its prospectus ahead of the initial public offering, CNOOC said it could face additional sanctions. "We cannot predict if the company or its affiliates and partners will be affected by U.S. sanctions in future, if policies change," CNOOC said.
In the United States, CNOOC owns assets in the onshore Eagle Ford and Rockies shale basins as well as stakes in two large offshore fields in the Gulf of Mexico, Appomattox and Stampede. Its main Canadian assets oil sands projects are Long Lake and Hangingstone in Alberta Province.
All of the above is a very long-winded way to put what Rabobank's Michael Every summarized in just a few words:
Reuters says China's oil giant CNOOC is preparing to exit the UK, Canada, and US over sanctions fears. Why would it be retreating if China is not going to do anything that could cause it to be subject to secondary sanctions?
The answer? Because China will do things that will cause it to be subject to sanctions.
中海油(00883)今日明確，目前在英、美等國的油氣項目運營正常，沒有退出某一特定區域業務的計劃。
上月底，外電援引知情人士稱，中海油一直在審查其海外業務，可能最快在幾周內啟動出售在英國北海油田價值估計高達30億美元的投資組合，並擬退出美國和加拿大業務，出售原因則稱是擔心受到西方制裁。值得一提的是，中海油將於2022年4月21日正式登陸上海證券交易所。(xt)
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