Chinese state-owned oil firm plans to drop assets in the West for fear of economic SANCTIONS

04/22/2022 / By Ramon Tomey

An oil company owned by the Chinese government announced plans to drop its assets in Western countries for fear of sanctions that may be imposed on it.

Industry sources confirmed to Reuters in late March that China National Offshore Oil Corporation (CNOOC) is preparing to divest its operations in the U.S., U.K. and Canada due to the looming threat of sanctions. The state-owned oil giant is seeking to unravel its $15 billion investment in CNOOC Petroleum North America, which was formerly the Canadian oil company Nexen prior to the Chinese firm’s acquisition in 2013.

Nexen’s former assets in the North Sea, Gulf of Mexico and the Athabasca oil sands in Canada produce approximately 220,000 barrels of oil per day.

The four industry sources told Reuters that CNOOC has hired Bank of America to start preparing a formal sale of its North Sea assets. CNOOC’s North Sea assets include the Buzzard, Golden Eagle, Scott, Telford and Rochelle oil fields. The Chinese firm holds a 43.2 percent stake in the Buzzard field, while it has a 36.5 percent stake in Golden Eagle.

CNOOC’s North Sea assets could raise more than $3 billion if the sale pushes through. Both the state-owned oil firm and Bank of America declined to comment on the matter.

According to two Chinese industry executives who were among the four sources, the planned sale was part of a broader review of CNOOC’s international assets. The state-owned oil giant has made “sizeable discoveries” in Bohai Bay and has established new development prospects in Guyana and Uganda. These endeavors have given CNOOC the confidence to offload the Western assets, added the two executives.

The timing of the planned sale appears to line up with a sharp increase in gas and oil prices triggered by the Russia-Ukraine war, which began in February. Tightening supply due to sanctions against Russia and increasing demand is set to continue pushing prices up.

Beijing fears sanctions from the West

One of the sources said CNOOC’s top brass found managing former Nexen assets in Western nations “uncomfortable” due to red tape and higher operating costs. However, another source from the banking industry remarked that China fears tariffs and other possible sanctions that could impact its future investments.

CNOOC itself acknowledged the risk of sanctions the U.S. could impose in its 2021 annual report. “Different levels of the U.S. government – federal, state or local – may impose economic sanctions of varying severity against certain countries. It is impossible to predict whether the business or the company or its affiliates, the countries [or] regions where the business is conducted or its partners will be affected by the U.S. sanctions in the future due to [policy] changes,” the report stated.

“If this happens, [CNOOC] may not be able to continue to carry out relevant business, or it may not be able to continue to carry out business in the affected countries or regions. [It may also harm] the company’s opportunity or ability to obtain new business.” (Related: China strategically developed contingency plans years ago to withstand economic sanctions, WWIII.)

Senior Chinese business finance columnist Chen Siyu told the Epoch Times that the West’s sanctions against Russia struck fear into the Chinese Communist Party (CCP). China’s ambiguous stance over the Russia-Ukraine war has also contributed to this fear of potential sanctions, he added. If the U.S. and other countries push through with seizing Chinese assets overseas, Beijing will incur massive technological and economic assets – which explains its move to rapidly divest overseas assets.

“The CCP has to rely on the U.S. whether it likes to or not. On one hand, it sends mixed signals on the Russia-Ukraine conflict, both withdrawing [from] and providing support to Russia. On the other hand, it [is strengthening] domestic food production [in fear of Western sanctions],” said Chen.

CommunistChina.news has more stories about Beijing selling off overseas assets to avoid the fallout of sanctions.

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