The FT has an amazing story today, from my friend Tom Burgis in Lagos, about China’s ambitions in Nigeria.
CNOOC, the state-owned oil company, wants to buy 6 billion barrels, or as much as one-sixth of Nigeria’s oil, for between $30 billion and $50 billion. If it pulls it off, the buy-up will dwarf every other Chinese energy deal in history.
The deal would involve CNOOC muscling in on oil-fieldss which are already being run by Shell, Chevron, Total and ExxonMobil, but whose leases are due for renewal.
It’s a very bold move, and not at all certain. The Nigerians may, of course, be using the spectre of a huge Chinese cash bid to cajole higher renewal fees out of its existing partners.
From the point of view of the Nigerian oil industry, which is starved of investment and troubled by endless raids by violent rebels in the Niger Delta region, the deal makes little sense.
Doing a deal with CNOOC that grabbed as much as a 49pc share away from the Western majors could involve a lengthy legal wrangle. The Nigerian oil industry is also pumping far less than it should – at only two-thirds capacity – could lose valuable Western expertise if there is a messy handover.
From China’s point of view, the oil-fields would eclipse all of its current interests in Africa, where its agreements in Sudan and Angola amount to around 4.7 billion barrels.
Locking in this much oil, at this price, is incredibly ambitious. CNOOC is offering to pay Nigeria around $8.33 a barrel (at a price of $50 billion). This compares to the $16 or so that Saudi Arabia gets per barrel.
Generally, oil producing countries get to keep around 25pc of the price of a barrel, with oil companies taking 75pc. With the price of oil hovering at around $65 a barrel for London-traded Brent crude (during a recession), the Nigerians will be looking for a much higher price.
And there’s currently no love lost between Nigeria and China anyway, with a spat passing through the Nigerian government about the 30 Nigerian corpses that China wants to cremate because it can’t trace and the 732 Nigerians who are currently serving time in Chinese prisons.
All in all, then, the deal looks highly speculative, and while China might end up with a few extra licenses, it is unlikely to walk away with the volume of reserves that it wants.