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THE JOURNALISTS AND EDITORS WORKSHOP

ON LATIN AMERICA’S ENERGY FUTURE


Miami, Florida

May 6, 2011


Simin Yu, LL.B., M.A., J.D.

Senior Associate

Wenya Group

CHINA’S ENERGY POLICY TOWARDS LATIN AMERICA


The Figures:



1.
In 2010 alone, China made US 20bn
-
worth of oil and gas deals in Latin
America, up from:




zero in 2009;


US$ 1 billion in 2008;


zero in 2007;


US$ 0.43 billion in 2006; and


US$ 1.42 billion in 2005




2.
estimated that by 2010, Chinese firms have secured deals in LA worth at
least $65 billion in stakes of various projects.




3.
Latin America as a region has supplied around 8
-
9% of China's total oil
imports in 2010, up from 6
-
7% in 2009
.



4.
Chinese companies have spent $24.6bn on overseas oil and

gas
acquisitions in 2010, accounting for a fifth of deal activity in the sector

over
the period.



CHINA’S ENERGY POLICY TOWARDS LATIN AMERICA

The above investments are limited to LA’s oil and gas sector.

Source: author’s calculation

Chinese NOC Expansion in Latin America

China’s Investments in Latin America

Source: MOFCOM

Unit: US$ million

China’s Investments in Latin America,
cumulative

Source: MOFCOM

Unit: US$ million

China’s Investments in Latin America,
cumulative

Source: MOFCOM

Unit: US$ million


China’s Energy Policy towards LA:



The Chinese government unveiled a policy paper on “Latin
America and the Caribbean” in November, 2008.




The following is what commonly considered as key aspects
of China’s energy policy towards LA:




1. Trade
-

Further diversify China’s crude oil import
sources.




CHINA’S ENERGY POLICY TOWARDS LATIN AMERICA

Sources of China's Crude Oil Imports

Gradual increase of oil imports from Africa, corresponded


with a recent decrease of Middle East crude.

Source: Dow Jones, Reuters

Dominate LAC Trade to China (2009)

Five Countries, Eight Sectors


Source: UN Commodity Trade Statistics

China’s Average Annual Trade Growth, by Key Regional
Partner, 1990


2009 (%)

China’s Rank as a Trading Partner for Selected Countries in Latin
America, 2000 and 2008

China’s Import from Latin America: Value and
Percentage of World Total


China’s Energy Policy towards LA:




2. Investment
-

Through government level initiative,
encourage and facilitate China’s
NOCs
’ involvement in
Latin America’s energy sector.

CHINA’S ENERGY POLICY TOWARDS LATIN AMERICA

China’s NOCs in numbers

Estimated Chinese share of overseas
equity in oil exporting countries, Q1 2010

Major Chinese Acquisitions in Latin America

Source: Kevin Gallaher

Major Chinese Acquisitions in Latin America, 2005
-

2010

Source: Heritage Foundation

Argentina



Acquisition


CNOOC bought a 50% stake in Bridas Corporation in March 2010 for US$ 3.10
billion




forming the CNOOC / Bridas JV


financing


CNOOC internal resources


CNOOC’s first major acquisition in Latin America, giving CNOOC 318 million barrels of reserves


a 12% increase for CNOOC’s global portfolio



Acquisition


CNOOC / Bridas JV acquired BP’s 60% stake in Pan America Energy in November
2010 for US$ 7.06 billion




acquisition limited to PAE’s assets in Argentina, excluding its assets in Bolivia


financing
-

CNOOC contributed US$ 2.47 billion, Bridas Energy Holdings contributed US$ 2.47
billion, with the remaining US$ 2.12 billion to be satisfied by third party loans to be arranged by
Bridas or additional contribution from CNOOC and BEH




CHINA’S ENERGY POLICY TOWARDS LATIN AMERICA

Argentina



Acquisition


Sinopec acquired Occidental Petroleum’s operations in Argentina in November 2010
for US$ 2.45 billion, closed in February 2011




the agreement was signed two weeks after CNOOC’s acquisition in PAE


one month before that, in October 2010, Sinopec signed a US$ 7.10 billion deal to buy 40% of
Repsol SA’s Bazillion assets


Sinopec’s first investment in Argentina’s upstream oil and gas sector


Occidental Argentina had gross proven and probable reserves of 393 million barrels of oil
equivalent, and an interest in 23 production and exploration concessions in Santa Cruz, Mendoza
and Chubut provinces in Argentina


Occidental Argentina’s 2010 production


15 million BOE and 14 billion cubic feet of natural gas
equivalent



Acquisition (downstream)


PAE, 30% indirectly controlled by CNOOC, agreed in February 2011
to purchase ExxonMobile’s downstream business in Argentina, Uruguay and Paraguay




PAE currently has no downstream exposure


PAE will acquire the 87,000 barrel per day (b/d) Campana refinery as well as 500 service stations
in Argentina and a further 220 in Uruguay and Paraguay


price not officially released, media report at around US$800
-
850 million




CHINA’S ENERGY POLICY TOWARDS LATIN AMERICA

Brazil



Acquisition


Sinopec acquired 20% stakes in two offshore blocks from Petrobras in April 2010




Sinopec would take stakes in the BM
-
PAMA
-
3 and BM
-
PAMA
-
8 blocks in deep waters of the Para
-
Maranhao basin in northern Brazil


value of the sale not disclosed



Acquisition


Sinochem acquired a 40% stake in Peregrino field from Norwegian Statoil ASA for
US$ 3.07 billion in May 2010, closed in April 2011




Sinochem, China’s biggest chemicals trading firm, make its first oil and gas investment in 2003 and
is now operating 12 projects in the Middle East, Asia and Latin America


The field has an estimated 460 million barrels, operation started in April 2011


Statoil is to maintain the remaining 60% ownership, as well as the operatorship of the field


CNOOC was also in the bidding process



Acquisition


Sinopec acquired a 40% stake in Repsol’s Brazil arm for US$ 7.1 billion in October
2010, closed in December 2010




through new share subscription


the second
-
largest overseas purchase by a Chinese company


CHINA’S ENERGY POLICY TOWARDS LATIN AMERICA

Brazil



Oil
-
for
-
Loan Deal


China Development Bank agreed to lend US$ 10 billion to Petrobras in April
2009 in exchange for long
-
term supplies of oil




Petrobras agreed to sell Sinopec 200,000 barrels of oil per day


roughly a tenth of Petrobras’s
current oil production


from 2010 to 2019


The oil will be bought at a market price but has the benefit of securing supply to Sinopec


in April 2011, Petrobras confirmed that it is in talks with China Development Bank for a new loan,
deals yet to be agreed



Gas Pipeline Construction Project






GASCAC project
-

974
-
kilometer
-
long pipelines, work extension in GASENE project, Sinopec’s
largest overseas petroleum engineering project by then, financed by China Development Bank with
US$ 750 million, operation started in 2010


GASCAV project
-

303
-
kilometer
-
long pipelines , another part of the GASENE project, commenced
in June 2006 and finished in 2007



CHINA’S ENERGY POLICY TOWARDS LATIN AMERICA

Venezuela



Joint Venture


Sumano Oil Company, CNPC’s JV with PDVSA, awarded exploration rights in the
Sumano field in 2007




CNPC to take a 40% interest in any commercial production in the block



Joint Venture


CNPC agreed in April 2010 to invest US$ 900 million in another joint venture with
PDVSA, with CNPC holding 10% ownership




to develop Junin 4 oil block in Orinoco heavy oil basin


Sinopec owns Junin 8 block



Joint Venture


it is reported in February 2011 that CNOOC will team up with Malaysia's Petronas,
Algeria's Sonatrach, and a Russian consortium to develop offshore natural gas project Mariscal
Sucre




the project is estimated to hold around 14.7 trillion cubic feet of gas


PDVSA has spent more than a decade searching for partners to develop its Mariscal Sucre project




CHINA’S ENERGY POLICY TOWARDS LATIN AMERICA

Venezuela



Wide range JV cooperation






upstream oil exploration and production


Sinovensa, CNPC holds 40% and PDVSA holds 60%


Oil Transport JV


CNPC and PDVSA each holds 50%


downstream oil refinery JV


located in both China and Venezuela, CNPC holds 60% and PDVSA
holds 40%


rig manufacturing JV


capable of producing eight rigs per year, PDVSA has an 85% stake in the
JV and CNPC 15%






CHINA’S ENERGY POLICY TOWARDS LATIN AMERICA

Venezuela



Loans
-
for
-
Oil Deal





“Long
-
Term and High Volume Loan”




signed in 2010, 10
-
year, US$ 20 billion credit line with China Development Bank


to be repaid with future oil shipments


earmarked for infrastructure projects, housing and agriculture


ICBC Loan




signed in 2011, totaling US$ 4 billion, with Industry and Commerce Bank of China


for housing projects in Venezuela, mostly to address an acute housing shortage in Venezuela


to be repaid with future oil shipments


Joint Investment Fund




set up in 2007 with an initial contribution of US$ 6 billion, (US$4 billion from China, and US$ 2
billion from Venezuela)


doubled its size to US$ 12 billion in 2008 (same contribution ratio)


Two previous Chinese installments into the bilateral fund, totaling $8 billion, have been mostly
repaid by Venezuela


a third round injection in the amount of US$ 4 billion will soon be made by China
Development Bank, agreed in March 2011, for housing project, bringing CDB’s total loans up
to US$ 24 billion


repaid by crude and oil products




CHINA’S ENERGY POLICY TOWARDS LATIN AMERICA

Colombia



Acquisition


in 2006, Sinopec and ONGC teamed up to buy a 50% stake in Omimex de Colombia
for US4 850 million


Omimex de Columbia's blocks in Columbia have proven reserves of around 157 million barrels



E&P


CNPC in 2008 formed a consortium with Pluspetrol (Argentine privately
-
held oil firm) and
KNOC (Korea National Oil Corporation)


to explore oil in CPE 7 field, located in Llanos, eastern Colombia, which has about 130 oil fields
under production


KNOC owns a 30 percent stake in the field, while Pluspetrol and CNPC own 40 percent and 30
percent, respectively



Acquisition


Sinochem indirectly acquired the following E&P contracts in Colombia when it
purchased Emerald Energy in 2009


Matambo Association Contract, Gigante field


Campo Rico Association Contract, Campo Rico & Vigia Fields


Fortuna Association Contract


Maranta E&P Contract


Ombu E&P Contract


Helen E&P Contract


Jacaranda E&P Contract




CHINA’S ENERGY POLICY TOWARDS LATIN AMERICA

Ecuador



Acquisition


in September 2005, Andes Petroleum Corporation, a joint venture of CNPC and
Sinopec (CNPC owns 55%, Sinopec owns 45%), purchased all of Canada
-
based EnCana’s oil and
pipeline interests in Ecuador for US$ 1.42 billion, closed in February 2006



Assets acquired in this action include three oil tracts with a crude oil output of 7 200 barrels per
day


in August 2008, Andes Petroleum signed a new contract with Ecuadorean state oil company
Petroecuador, tripling the Ecuadorean state participation in the production of crude from its two oil
concessions, Blocks 14 and 17. Andes Petroleum will receive a fee for extracting oil in Ecuador
instead of keeping a portion of the crude it produces.


Andes Petroleum planned to further invest $103.9 million in Ecuador over the next 10 years.



Signing of the following Agreements Not Confirmed
:



2009
-

Sinopec’s reported US$ 1.1 billion JV project with state
-
owned Petroecuador to conduct
E&P in Ishpingo
-
Tiputini
-
Tambococha, ITT oil field


2010
-

Sinopec’s reported US$ 500 million investment in Ecuador’s Olgan block


CHINA’S ENERGY POLICY TOWARDS LATIN AMERICA

Ecuador



Prepayment
-
for
-
Oil Deal


CNPC’s publicly listed arm, PetroChina, signed the agreement with
Petrocuador in February 2011



Under the new two
-
year agreement, Ecuador received US$1 billion from PetroChina as
“prepayment” in full for 69 million barrels of crude, which it will begin to ship to China this August


This agreement is an update to the 2009 contract signed, which will expire July 2011, Ecuador
received its first $US 1billion through its loans
-
for
-
oil deal with China in 2009, following Ecuador’s
US$ 3.2 billion bonds default in 2008.


The new 2011 payment will be used to finance investment project already budgeted for 2011, in
addition, the money will be invested in Petroecuador's Strategic Operational Plan and will help pay
off the company's prior debts.


The contract does not entail an oil prepayment as do regular contracts, since the Ecuadorian state
will have to pay an interest rate of 7%, higher than the ones typically offered by IMF or World Bank


It is said to be a Loans
-
for
-
Oil deal in guise


a money loan from China, guaranteed with petroleum
and including the payment of interests



Loan for hydroelectric plant and other public projects



not loans
-
for
-
oil deal


US$ 1.68 billion from China Eximbank, carrying a 6.9% interest rate, signed in 2010, for
construction of the Coca Codo Sinclair hydroelectric dam


Additional US$ 1 billion, also signed in 2010, energy, oil and telecommunications projects

CHINA’S ENERGY POLICY TOWARDS LATIN AMERICA

Cuba



Framework Agreement with CNPC




signed in 2008, no details have been outlined in the agreement


on expanded cooperation in engineering services, oil equipment and joint exploration of Cuba’s
offshore oil and gas fields



Production Sharing Agreement with Sinopec




signed in 2005


between Sinopec’s unit Shengli Oilfield Administration Bureau and Cupet


explore Block 3 in the northern part of Pinar Del Rio province and covers 1700 square kilometres






CHINA’S ENERGY POLICY TOWARDS LATIN AMERICA

Peru



Sinochem






Emerald Energy, bought by Sinochem in 2009 and now its wholly owned subsidiary, won
exploration contracts in five blocks offered by PeruPetro in November 2010



CNPC






Block 6/7 project in Talara Oilfield
-

the first overseas oilfield development project CNPC operated,
taken over by CNPC in January 1994 and October 1995 respectively


Blocks 8 and 1 A/B


CNPC acquired a 45% stake from Argentine PLUSPETROL’s Peruvian oil
fields in 2003, making CNPC the second largest oil producer in Peru after Pluspetrol


Block 111 and Block 113 in the MDD basin


CNPC signed these two risk exploration contracts
with Peru in 2005




CHINA’S ENERGY POLICY TOWARDS LATIN AMERICA

Bolivia



Energy
-
related Loan






Bolivian government borrowed US$ 60 million from China’s central bank in 2009 for completing its
domestic gas networks and purchase of two drilling rigs.



Framework Agreement






In September 2005, China's Shengli International Petroleum Development Co. Ltd. signs a
framework pact with state
-
run

Yacimientos Petroliferos Fiscales

Bolovianos to invest $1.5 billion
over 40 years in Bolivia's onshore oil and gas sector.


There are no follow
-
ups being reported




CHINA’S ENERGY POLICY TOWARDS LATIN AMERICA

Costa Rica



Refinery Projects






CNPC invested US$ 1 billion in a JV with Costa Rica’s state
-
run Recope for a refinery upgrading
project in 2008;


CNPC is planning a US$ 5 billion investment to build a new refinery there, aimed to provide fuels
through the region and its neighbors from Costa Rica




CHINA’S ENERGY POLICY TOWARDS LATIN AMERICA

Uruguay



Acquisition (downstream)


PAE, 30% indirectly controlled by CNOOC, agreed in February 2011
to purchase ExxonMobile’s downstream business in Argentina, Uruguay and Paraguay




PAE currently has no downstream exposure


PAE will acquire the 87,000 barrel per day (b/d) Campana refinery as well as 500 service stations
in Argentina and a further 220 in Uruguay and Paraguay


price not officially released, media report at around US$800
-
850 million


its assets in Bolivia


financing
-

CNOOC contributed US$ 2.47 billion, Bridas Energy Holdings contributed US$ 2.47
billion, with the remaining US$ 2.12 billion to be satisfied by third party loans to be arranged by
Bridas or additional contribution from CNOOC and BEH




CHINA’S ENERGY POLICY TOWARDS LATIN AMERICA

Paraguay



Acquisition (downstream)


PAE, 30% indirectly controlled by CNOOC, agreed in February 2011
to purchase ExxonMobile’s downstream business in Argentina, Uruguay and Paraguay




PAE currently has no downstream exposure


PAE will acquire the 87,000 barrel per day (b/d) Campana refinery as well as 500 service stations
in Argentina and a further 220 in Uruguay and Paraguay


price not officially released, media report at around US$800
-
850 million




CHINA’S ENERGY POLICY TOWARDS LATIN AMERICA

Trinidad & Tobago



Acquisition


Sinopec acquired Canadian oil company Taliman’s local assets in 2009,
through its subsidiary SOOGL Antilles (Trinidad) Ltd (SOOGL stands for Sinopec
Offshore Oil and Gas Ltd.)

purchased assets portfolio


a 25% non
-
operating interest in the Angostura development area of block 2(c)


a 36% interest in the block 2(c) Howler assessment area


a 26% interest in the Greater Ruby
-
Delaware appraisal area of block 3(a)


a 40% interest in the exploration area of block 3(a)


a 65% operating interest in the onshore East Brighton block

net total proved reserves in Trinidad & Tobago

6.23 billion cubic meter of natural gas
and 4.3 million barrels of oil and NGLs




CHINA’S ENERGY POLICY TOWARDS LATIN AMERICA


Major Chinese approaches to energy & resources:




I.
Long term contract + negotiation of price




II.
Investing in equity at company level




III.
Investing in specific project / asset




IV.
Loans
-
for
-
Oil Deals




V.
C
ooperation with other multinational companies




VI.
buying other IOC’s local assets




VII.
Joint Development Model

CHINA’S ENERGY POLICY TOWARDS LATIN AMERICA

Source: author’s calculation

Interpreting Chinese NOCs’ Strong Interests in LA:


1.

LA has vast reserves that are concentrated
geographically;

2.
Recent new oil discoveries in Latin America;

3.
China has a real need to secure long term supply of oil;

4.
Less competition with other IOCs;

5.
China has a longer
-
term horizon;

6.
Despite their deep pockets, Chinese NOCs have mostly been
unwelcome in other parts of the world;

7.
To diversify imports;

8.
A number of LA countries are cash
-
strapped;

9.
Many LA countries in favour of like
-
minded state
-
owned
national oil companies for E&P join ventures;

10.
ICOs in the region willing to sell assets;

11.
A change of pace by Chinese resource companies over the
past two years in terms of acquisition activity;

12.
Chinese firms will seek to establish more consumer bases
abroad;


CHINA’S ENERGY POLICY TOWARDS LATIN AMERICA

A Few Observations:


-

Geopolitical Considerations

-
How importance of Latin America for China’s energy security?

-
Drastic Increase in Crude Imports?

-
Investment Boom expected to continue?

-
Chinese NOCs’ Challenge
-

Policy Uncertainty,


Regulatory Framework, Social Risks, Intense Market Competition,


Environmental Clauses, Transportation Costs, Technology of refinery

CHINA’S ENERGY POLICY TOWARDS LATIN AMERICA

Simin Yu, LL.B., M.A., J.D.

Senior Associate

Wenya Group


Email:

syu@ualberta.ca

THANK YOU

CHINA’S ENERGY POLICY TOWARDS LATIN AMERICA