In 2005, Fu Chengyu, then-CEO of the state-controlled Chinese oil company CNOOC, wrote an op-ed for the Wall Street Journal, titled, Why is America Worried? Fu (pictured above) intended to reassure Americans that he meant no harm with a bid at the time to buy Unocal, the California-based oil company. But it did no good: Americans were in fact worried about allowing what they regarded as a strategic resource to fall into the hands of a rival country. Instead Chevron, with a lower bid, ended up with Unocal.
Today, Fu, now CEO of another Chinese oil giant called Sinopec, is back in the United States. He has been buying up minority stakes in large unconventional oil fields -- shale gas and shale oil -- through deals with companies like Chesapeake Energy and Devon Energy. The Wall Street Journal says the state-by-state total investment since 2010 between Sinopec and CNOOC has been $17 billion.
So should America again be fearful? The answer is no. Specifically, if the U.S. were presented today with a similar situation in which Sinopec, CNOOC or another big Chinese enterprise bid on a U.S. oil company, it ought to eagerly embrace it.
The reason is that, unlike with IT or other high-tech intellectual property, it is in the United States' strategic interest for China to possess its companies' cutting-edge oilfield technology, specifically how to develop shale gas and shale oil. China will keenly seize on that technology and apply it back home, with the result that pressure will be reduced on global oil prices. On shale gas, because a big find of indigenous gas is one of the only ways in which China will switch out of far dirtier coal in the production of electricity, it would be a strategic achievement if China became a first-rate fracker.
I spoke this morning with an oilman having specific interest in the subject -- John Imle, Unocal's former president. Imle said that a Chinese acquisition of a U.S. energy company -- say, Chesapeake, the second-largest gas player in the country -- would be "all upside" for the U.S. He said:
It's part of globalization and not an unhealthy part. It's positive for humanity because it results in energy supplies that are adequate so we don't have energy wars down the road. And it should provide lower-cost energy globally, which is important for the global economy. So I don't see any downside. It's all up. We want the Chinese to have plenty of gas.
When someone invites you to a party but leaves before dessert, it might be time to locate your own coat and hat. Such are the suspicions generated by Chesapeake Energy, which after selling numerous billion-dollar pieces of its vast shale gas holdings to the world's largest energy companies has abruptly announced that it is drawing down.
A Chesapeake-led rage in shale gas has gone on for some four years, ignited by advances in a drilling method called hydraulic fracturing. In the beginning, Oklahoma-based Chesapeake, run by a wildcatter named Aubrey McClendon, was among the most aggressive acquirers of shale gas leases in the United States. A Forbes writer described McClendon as perhaps "reckless," but also "charming" and "erudite," not to mention youthful, ingenious and even heroic. (At O&G, we have found McClendon temperamental and ideologically self-destructive to a degree that risked the entire shale-gas bonanza, but that's just us.)
Altogether, drilling by Chesapeake and other companies has since then transformed the U.S. from a natural gas importer into a country so awash in gas that it may spend decades as an exporter. Russia has been rendered less secure in Europe, and China may shake things up further by opening up an even larger shale-gas frontier.
Along the way, Chesapeake has generously let later-comers into the game. Among McClendon's deals, he got $3.6 billion from BP for a 25 percent stake of Chesapeake's Fayetteville shale in Arkansas, and all of its Woodford Shale of Oklahoma's Arkoma Basin. A year ago, McClendon got $4.75 billion for Chesapeake's Fayetteville Shale holdings from Australian mining giant BHP Billiton. That was just after he did a $1.3 billion deal with China's CNOOC for a piece of his company's Niobrara Shale, straddling Colorado and Wyoming.
Four weeks ago, Chesapeake disclosed another blockbuster deal -- a $2. 3 billion partnership with France's Total for part of the company's Utica Shale holdings in Ohio.
But last week, Chesapeake announced that the risk is too high. The shale-gas rush had resulted in the historical boom-bust bane of the oil patch -- massive over-production, and a price collapse -- and McClendon was moving on; oil, for example, was looking pretty good, the company said. In an amusing piece at the Financial Times, John Dizard, a long-time shale gas skeptic, quotes from Catch-22, and goes on to describe Chesapeake's announcement:
The Wall Street maxim is that they never ring a bell at the top. However, on Jan. 23, Chesapeake Energy did ring a bell at the bottom. The undoubted leader of the shale gas revolution announced that it would reduce drilling expenditures this year by more than 70 per cent, curtail its gas production by 8 per cent, cut land buying by $2 billion, and allow uneconomic gas leases to expire.
Spencer Platt/Getty Images
Steve LeVine is the author of The Oil and the Glory and a longtime foreign correspondent.