China-Africa Energy Cooperation: A Win-Win Road in the New Era

On February 21, 2012, China National Offshore Oil Corporation announced in Beijing that the company and Tuluo Oil Company ("Tourou") had completed the delivery of the previously signed sales and purchase agreement ("the agreement"). According to the agreement, the company acquired 1/3 of Tulo’s interest in the 1, 2 and 3A exploration areas in Uganda. The total transaction price is approximately 1.467 billion US dollars in cash.

Since the three-party joint investment of approximately US$10 billion was launched in Uganda in April 2011, a cooperation agreement was finally reached after ten months, which is nearly six months later than previously forecasted.

On February 22, 2012, Elly Karuhangu, President of Tulo Petroleum, Uganda, revealed at the 2012 China Africa Investment and Risk Forum that the cooperation between Toulo and CNOOC has been ongoing for two years. "I'm honored to announce that yesterday we signed a cooperation agreement with China National Offshore Oil Corporation, one of China's largest oil companies, and we will jointly share the future prosperity."

After the transaction is completed, CNOOC will be the operator of the new Kanywataba exploration license in the original 3A block and the conversion from the original Kingfisher discovery in block 3A to a production license. Tullow and Total will be operators of the 2 and 1 exploration areas, respectively.

This is not the first time that Chinese energy companies have entered Africa. Data from the China National Petroleum Corporation’s Institute of Economics and Technology shows that since 2010, the number of countries that launched bids in Africa and the number of blocks launched have increased significantly. In the first 10 months of 2010, a total of eight African countries have organized or plan to hold bids, and there are more than 150 external tenders. Bidding activities are concentrated in North Africa and West Africa.

The development of Chinese energy companies in Africa has not been easy. The Sudan’s hostage incident in early 2012, political turmoil in previous regions such as *****, South Sudan’s independence, and Somali piracy intensified the risk of Chinese energy companies investing in Africa. Some countries in Africa have also stepped up efforts to protect their own resources and raised the threshold for joint ventures and cooperation. The government has even directly intervened in major asset transactions, but this does not affect the great prospects for Chinese energy companies to enter Africa.

Last week, a reporter from the China Economic Times interviewed a number of experts on African issues, including He Wenping, director of the African Research Office of the Chinese Academy of Social Sciences and West Africa Institute; Cheng Zhigang, secretary-general of the China-Africa Industrial Cooperation Forum; and director of the Institute of Economic Research, African Institute of Zhejiang Normal University. Zhang Xiaofeng, China Investment Advisor Energy Industry Researcher Song Zhichen. They generally believe that the opportunity for investment in China's energy companies is greater than the challenges. The cooperation between Chinese companies and African companies should focus on building a good relationship of shared benefit and risk sharing, and innovate in cooperation models.