Snubbed at top table, China chases oil M&A crumbs

By Sui-Lee Wee and Joseph Chaney - Analysis

HONG KONG (Reuters) - China's state-owned oil giants are likely to lose out to global rivals in a race for top energy assets, as they lack experience and hit a protectionist wall, forcing them to settle for smaller, but riskier buys.

This inability to buy top assets could limit growth potential at PetroChina (0857.HK), Sinopec (0386.HK) and CNOOC (0883.HK), and put CNOOC at risk of missing its ambitious production targets, analysts said.

Kosmos Energy's recent decision to award its prized Jubilee oil field stake in Ghana to Exxon Mobil (XOM.N) over CNOOC (CEO.N) is the latest sign that Chinese energy companies are not ready for oil prime time, bankers say.

While Kosmos did not explain its decision, analysts say concerns over inexperience and a long approval process at home for making such acquisitions could have played a factor.

"The other (oil field) partners like Tullow (TLW.L) and Anadarko (APC.N) would probably prefer Exxon to be successful as it has greater technical capability," said David Hewitt, an analyst with CLSA. "I suspect they want Exxon to prevail."

Chinese oil companies, tasked with securing energy supplies to fuel the world's fastest-growing major economy, are already being hemmed in by recent consolidation that has limited the number of assets on the global market.

Protectionism has also limited their options in markets from Australia to the United States.

Such concerns derailed CNOOC's $18.5 billion bid for Unocal in 2005, and observers say similar worries have left China National Petroleum Corp's (CNPC) bid for a majority stake in Spanish oil major Repsol's (REP.MC) Argentine unit YPF "on life support.

"The challenge they face in large corporate deals is one of resource nationalism," said Neil Beveridge, an analyst with Sanford C. Bernstein.

With so many options off the table, remaining possibilities could include Canadian oil firm Opti Canada Inc (OPC.TO), which may be on PetroChina's radar, and its peer Nexen Inc (NXY.TO), which CNOOC and CNPC may be interested in, bankers say.

Australian oil and gas firm Santos (STO.AX) has also been named as a potential China target.

ECONOMIC ASSISTANCE, JOINT VENTURES

China's energy and power companies have spent $19.7 billion on outbound acquisitions this year, mostly in risky areas such as Africa, where Western rivals fear to tread, or in locations with aging assets.

For example, Sinopec Group paid $7.24 billion in June for Switzerland's Addax Petroleum (AXC.TO), whose main assets are in West Africa and Iraqi Kurdistan.

Even in markets where governments would welcome them, Chinese have recently met with obstacles, most recently in Angola and Libya.