• Reliable sources of energy.
• A modern, efficient infrastructure, consisting of a good road and rail system, reliable power grids and high-speed digital communications networks.

And if a country wants to be considered a “global economic powerhouse,” it’s nearly impossible for it to do so without these critical building blocks.

So it’s not too surprising that China is spending unprecedented amounts of money to beef up its infrastructure.

It’s also spending huge amounts of money on long-term oil and gas contracts. And with nearly $2 trillion on hand, it’s the perfect time for China to go on an energy acquisition spree.

Right now, it’s spending like a thirsty sailor on shore leave…

You see, despite the recent pullback in the Chinese stock market, the country is still on an economic roll that will continue for the next 50 years. According to The Economist, China’s capital spending is a whopping 44% of its GDP, and in raw dollars could exceed that of the United States for the first time this year.

And you can bet that its increase in energy use will track right along with its growth.

But China’s energy problems are similar to those of the United States: It doesn’t have enough of its own sources of fossil fuel to meet its needs.

So what is China doing to combat this? And is there a way to tap into this in terms of investing? Answers below…

China’s Energy Asset Acquisition Spree

At the moment, China is importing coal, liquefied natural gas (LNG) and crude oil. And to guarantee that those supplies are uninterrupted, it’s buying some major deposits of oil and gas, along with the refineries to process it.

We’re not just talking small potatoes, either. Since Christmas, China has been on an overseas energy asset acquisition spree. The country has spent a total of $17 billion, easily topping the $13.1 billion it spent in all of 2008. What’s more, the pace of acquisitions doesn’t appear to be slowing – and could even ramp up into 2010.

Many companies are teaming up, putting together joint deals that insure even the largest purchases have funding behind them. And some are very, very big. For example…

• In April, PetroChina (NYSE: PTR) partnered with KazMunaiGaz and plunked down a cool $5 billion to purchase JSC MangistauMunaiGas from Central Asia Petroleum. This was one of the first instances of Chinese firms partnering together to purchase a foreign oil company.
• June saw a highly publicized $20 billion deal, in which China National Petroleum Corporation joined forces with BP (NYSE: BP) to buy a 75% stake in the Rumaila oil field in southern Iraq. The consortium’s bid topped that of the Exxon/Mobil (NYSE: XOM)/Shell (NYSE: RDS) partnership.
• Just one month later, the China National Offshore Oil Company (NYSE: CEO) – often referred to as CNOOC – hooked up with Sinopec. The two of them coughed up $1.3 billion to acquire a 20% stake in a deepwater block off Angola from Marathon Oil.

China’s Knee-Deep In Canadian Oil Sands

Now, the Chinese have landed in Canada. And it’s not because they like hockey. They’ve quietly bought up several parts of different oil sands operations.

Just a few days ago, PetroChina announced a $1.7 billion deal, in which it will acquire a 60% stake in Athabasca Oil Sands Corp’s MacKay River and Dover oil sands fields.

This isn’t the first time that China has invested in Canadian oil sands. Back in 2005, CNOOC purchased a 16.7% stake in MEG Energy Corporation, while China Petrochemical Corporation plunked down $83 million for a stake in Syneco Energy, Inc.

So why is China interested in something like oil sands – oil that is very difficult and expensive to bring to fruition? Simple. All the easy, lucrative projects have already gone. It’s a disturbing indication of China’s quiet determination to increase its oil and gas reserves… at any price.

So what’s next?

How To Invest In China’s Energy Acquisition Express

As evidenced by the variety of different operations that China has acquired recently, the country is taking a shotgun approach to energy.

And while it’s not easy to see what it’s focused on next, the best way to play this trend is by owning shares of the buyer. This includes big Chinese oil companies like…

• PetroChina
• Sinopec (NYSE:SHI)
• CNOOC

All these firms have American Depositary Receipts (ADRs), which means you can trade them on the U.S. exchanges.

One note of caution before you do, however: If you read my colleague Louis Basenese’s piece on the China sell off earlier this week, he highlighted 10 reasons why the Chinese market is set to fall from here.

I agree with Lou – and I believe waiting until we see evidence that the Chinese markets have bottomed will represent an excellent time to take a position in some of these companies.

Good investing,

David Fessler

Source: China’s Energy Acquisition: Three Ways to Invest in China

If you’re looking for the next “Big Oil” play, bet on Beijing.  As we’ve been reporting for the past several years, China has been on a global commodities shopping spree, which includes locking up every source of oil that it can.

The Red Dragon has cut deals in Africa, South America Russia and the Middle East – and won’t stop there. Even the mainstream news media is finally becoming aware of this crucial trend.

But here’s the thing. It’s not enough just to know that this is happening. In order to profit, an investor really needs to understand why it’s happening – and to invest accordingly. Investors who lack this insight may make the strategic misstep of betting heavily (or exclusively) on the Western heavyweights – Exxon Mobil Corp. (NYSE: XOM), BP PLC (NYSE ADR: BP) or Royal Dutch Shell (NYSE ADR: RDS.A, RDS.B) – while ignoring the oil sector’s real growth story, which is China.

Just this year alone:

• China and Russia have signed a multi-billion-dollar, intergovernmental agreement to construct an oil line from Russia that will supply oil directly to China. Actually seven agreements in one, the terms depict a deal worth trillions of dollars – including a 20-year oil contract to pump Russian oil to the Chinese market. In return, China has agreed to provide a total of $25 billion in loansto Russian oil companies Transneft and OAO Rosneft Oil Co. China even gets a cut of Rosneft’s production, as part of the deal.
• In Africa, China’s CNOOC Ltd. (NYSE ADR: CEO) and Sinopec Shanghai Petrochemical Co. (NYSE ADR: SHI) are teaming up to buy a $1.3 billion stake in Angolan offshore development rights from U.S.-based Marathon Oil Corp. (NYSE: MRO). A key point of note: Angola – historically one of Exxon’s favorite investment targets – has recently overtaken Nigeria as Africa’s biggest oil producer.
• While noting that it’s hardly a done deal, The Wall Street Journaldid report earlier this month that China National Petroleum Corp. (CNPC) is interested in buying all or a part of Argentina’s YPF SA (NYSE ADR: YPF) for $14.5 billion.
• In Africa, China’s CNOOC Ltd. (NYSE ADR: CEO) and Sinopec Shanghai Petrochemical Co. (NYSE ADR: SHI) are teaming up to buy a $1.3 billion stake in Angolan offshore development rights from U.S.-based Marathon Oil Corp. (NYSE: MRO). A key point of note: Angola – historically one of Exxon’s favorite investment targets – has recently overtaken Nigeria as Africa’s biggest oil producer.
• Reports continue to circulate that CNPC will be taking the majority stake in Iraq’s Rumaila oilfield from BP. Rumaila is Iraq’s biggest oil field, producing more than a million barrels of crude oil per day.
• And China has become quite chummy with Brazil’s Petroleo Brasileiro (NYSE ADR: PBR). Petrobras is developing a huge new offshore field – one of the biggest new discoveries in decades, in fact – and any deal would include a production-supply agreement.

This flurry of deals hasn’t been a surprise to Money Morning readers. Even so, it’s worth taking a moment to look at some of the key catalysts behind many of these deals. Let’s look at the Top Three:

• Nervous Reserves: China is sitting on the world’s largest pile of cash – more than $2.3 trillion by some estimates. With an estimated 70% of that, or about $1.61 trillion, in U.S. dollars, there is no question it’s a huge source of financial firepower strength at a time when global markets are uncertain, if not downright weak. But it’s also a liability, too, in that China can’t diminish its high-concentration of greenback holdings without pushing the dollar off a cliff. So buying oil is a great way for China to diversify its reserves without kneecapping poor old Uncle Sam.
• Those Not-So-Free “Free” Markets: China has less faith in the “free” markets than the West does. Ironically, the United States and other Western powers are partly to blame for Beijing’s free-market skepticism. For instance, not only did the United Statesslam the door in China’s face when China tried to buy Unocal Corp. [now a part of Chevron Corp. (NYSE: CVX)]  a few years back, but when former U.S. President George W. Bush invaded Iraq, the war summarily cut off China’s ability to source oil from that Middle East member of the OPEC 12 (the Organization of the Oil Producing and Exporting Countries). Prior to the invasion, Beijing really didn’t consider the need to diversify China’s foreign-oil sources so our military action prompted their economic reaction. Now the genie’s out of the bottle.
• Peerless Perspective: China’s leaders know that they must lock up oil supplies at a time when the Western world can’t seemingly be bothered to understand that this is a zero-sum game. In other words, China views the global financial crisis as an opportunity to be exploited for economic gain and the security of its people, not as a problem to be solved. China understands the big picture, and even though we apparently painted it, the West doesn’t.  By scouring the earth for oil at a time when the West is hamstrung by the global financial crisis, not only is China able to strike more favorable deals at more favorable prices, but it’s locking up huge supplies of commodities for its own use for years, even decades, to come. In doing so – and this is the part of the equation so many experts don’t get – these resources are no longer available for our use here in the United States, which has major supply and pricing implications for this market.

Bamboozled by the Western media – which has perpetuated the “global-recession-means-lower-demand” story – it simply hasn’t dawned on most people here in the West that China doesn’t care about the majorlong-term impact this global buying spree will have on our economy.
Besides, this whole story thesis is flat out wrong. While the recession is definitely dampening our use of oil and gasoline, China’s oil demand is growing by more than 20% a year. And of the 8 million barrels a day that China already uses, half comes from imports. Beijing sees those as troubling statistics, which means that China:

• Absolutely must lock up as many significant external supplies oil as possible right now.
• And must accelerate its domestic exploration-and-processing efforts at warp speed.

Nor is this a static situation. China’s auto market is growing by 50% a year. It’s already the world’s largest, having passed the United States earlier this year. In fact, according to some estimates, China will have more cars on its roads in the next 20 years than all those we currently have in this country – even if you include the engine-less “restoration project” your next-door neighbor’s son has sitting under an oak tree in their back yard.

China’s never known high prices and its consumers haven’t either. So they don’t care like we do about what “price” is posted at the pump. Sure, you can argue as many Western analysts do, that China’s fuel is highly subsidized, but so what? That’s a moot point. Consumers who remember what it was like back when gasoline was 99 cents a gallon aren’t going to grouse about how it now costs $6 a gallon – these newly minted motorists will merely see gasoline as just part of the cost of having a car.

Because it understands its need for continual economic progress – as well as the role oil has to play to make that a reality – China is doing whatever it takes to guarantee future supplies, including structuring deals in ways that have caught Western companies by surprise. For instance, China’s companies are looking at how they can get a deal done by giving the other party something it actually needs. Moreover, in a move that’s as frustrating to Western leaders as it is surprising, many of these deals come with no strings attached. I suppose you could call it the “Red Dragon Option” – although Western firms would do well to embrace these as potential Harvard Business Review case studies.

After reading this overview, a U.S investor might want to conclude that China’s already got this one wrapped up and that “any resistance is futile.” But that’s not necessarily true. While China’s grown by leaps and bounds in terms of its financial sophistication when it comes to these deals, the country still lacks the relative exploration-and-production technology to go after the deep-water reserves and complicated fields where most of the still-undiscovered oil remains. Those are also the same kinds of locations where natural gas may be the better bet.

And that suggests that investments in both sectors – including deep-water drillers and companies that specialize in natural-gas liquification -may pay off for investors anxious to dine with the Red Dragon, instead of being listed as an entrée on the menu.

Source: Three Reasons China is Positioned to be the Oil Sector’s Next Big Profit Play

[Editor's Note: The global economic recovery will create an estimated $300 trillion worth of global-investing-profit opportunities. To find out how to capitalize and profit, you just need to know where to look.

]]> http://www.contrarianprofits.com/articles/three-reasons-china-is-positioned-to-be-the-oil-sector%e2%80%99s-next-big-profit-play/19976/feed 0 http://www.contrarianprofits.com/articles/china-tightens-grip-on-africas-energy-resources-with-stake-in-offshore-field/19397 http://www.contrarianprofits.com/articles/china-tightens-grip-on-africas-energy-resources-with-stake-in-offshore-field/19397#comments Thu, 23 Jul 2009 19:27:59 +0000 Jason Simpkins http://www.contrarianprofits.com/?p=19397 CNOOC Ltd. (NYSE ADR: CEO) and Sinopec Corp. (NYSE ADR: SHI) have agreed to buy a 20% stake in an oil field off the shore of Angola for $1.3 billion, illustrating China’s persistent attempts to acquire resources for its economic expansion at a time of weakness for many Western oil majors.

CNOOC and Sinopec will form a 50-50 joint venture to buy the stake in the so-called Angola Block 32, which has 12 previously announced discoveries. The Chinese energy giants purchased the stake from U.S.-based Marathon Oil Corp. (NYSE: MRO), but the sale is still subject to government and regulatory approval.

Marathon’s existing partners in the block – France’s Total SA (NYSE ADR: TOT), Portugal’s Galp Energia SGPS SA, Exxon Mobil Corp. (NYSE: XOM), and Sonangal, Angola’s…

Here’s one hot off the press:

Oh my, where do we begin? This beast calls for bullet points:

• Obviously, Wal-Mart (NYSE:WMT) is no longer No. 1. That title now goes to Royal Dutch Shell (NYSE:RDS.A). The American consumer is out, and a global oil conglomerate is in… ’nuff said
• There’s a clear sea change in American business. AIG, Lehman and Bear Stearns fell off the list from 2008-2009. Nike (NYSE:NKE), Google (NASDAQ:GOOG) and Amazon (NASDAQ:AMZN) moved up
• The world is increasingly less Amero-centric. An American company is not No. 1 for the first time in over a decade. In the whole list for 2009, 140 companies are American, the lowest number on record
• The world is increasingly more Sino-centric. Look at China National Petroleum and Sinopec (NYSE:SHI). Both Chinese companies are by far the biggest movers up from 2008-2009. Sinopec, an oil and gas company, also marks China’s first foray into Fortunes’ top 10. China now has 37 companies in the list of 500, its largest presence ever
• Oil is still where it’s at. In spite of all the price drama over the last year, seven of the top 10 firms are oil companies
• In the face of the worst global economic environment of our lifetimes, the world’s biggest companies are still making lots of money. The 2008 top 25 pulled in $4.88 trillion in revenue. This year, they made $5.38 trillion
• And freakin’ GE… what a black box. The world’s producer of everything was one of very few companies to retain the same position from 2008-2009. And despite the infamous GE Capital, the finance arm that apparently threatened to torpedo the whole company, GE ended up increasing revenues by nearly $7 billion. Hmmm…

Source: The Great Shift of 2009

Documents brought to light by key by congressional investigators hightlight real disagreement between top-level U.S. Federal Reserve officials about how it should address the Bank of America Corp.(NYSE:BAC) acquisition of Merrill Lynch & Co. Inc. are almost certain to fuel the ongoing congressional debate over the central bank’s push to expand its authority over the U.S. financial system.

This growing concern manifested itself Thursday, when Fed Chairman Ben S. Bernanke; was grilled by Capitol Hill lawmakers during a congressional hearing looking into the central bank’s conduct in BofA’s buyout of Merrill Lynch. Bernanke’s failure to resolve some of the most-pointed questions posed by congressional leaders – (especially Republicans) who wanted to discover whether the Fed overstepped its authority and interfered with merger-related decisions – may undermine a proposed financial system overhaul that would imbue the central bank with broad authority over big U.S. financial institutions. One example: In the Bank of America deal for Merrill Lynch, lawmakers felt that Bernanke & Co. should’ve required more concessions in return for the taxpayer-supplied financial aid, Bloomberg News said.

The bottom line: The additional oversight powers that Bernanke is seeking – and that are part and parcel of the proposed Obama administration financial-system overhaul may prove to be one very tough sell.

Both parties are likely to find fault with U.S. President Barack Obama’s plan to put the Fed on the point, positioning it as the single agency responsible for supervising the U.S. economy’s largest and most-interconnected banks and financial institutions, giving the central bank the power to dictate financial standards on capital, management of risk and even liquidity requirements.

“It may be more important for us to find another systemic risk regulator,” U.S. Rep. Paul Kanjorski, D-Pa., who is a member of the House Oversight Committee where Bernanke appeared, told Bloomberg TV. Congress should “hesitate to put any more authority on the back of the Federal Reserve.”
The internal central bank documents – e-mails, written notes and even official memos paint a picture of a government institution that’s “wrestling” with how tough it should be on BofA and other big banks,The Wall Street Journal reported. In December, Bank of America told federal officials it was looking to possibly end the deal, and current and former bank officials contend that the Fed and former Bush administration officials pressured BofA to go through with the deal, which has turned out to be much-less beneficial than hoped for.

On the other hand, these disclosures could bolster the argument by Fed officials that the central bank needs these powers to address future financial crises. The reason: These  disclosures show that it lacked the “tools” (the legislated power and authority) needed to tackle the problems as soon as they surfaced. The inability to do so probably lengthened the crisis and exacerbated both the damages – as well as its ultimate cost.

Market Matters

In non-financial news, U.S. commercial aircraft giant The Boeing Co. (NYSE: BA) struggled through a miserable week as it postponed testing of the new 787 Dreamliner aircraft and also lost orders from Qantas Airways Ltd., as the entire industry continued to suffer the ill effects of the economic downturn on travel.

Apple Inc. (Nasdaq: AAPL) reported better-than-expected early salesof its new iPhone 3G and appeared close to welcoming its fearless leader, Chief Executive Officer Steven Jobs, back to work.  Tech giantOracle Corp. (Nasdaq: ORCL) announced declining profits, but offered favorable forecasts for the current quarter and beyond.  Likewise, retailer Bed Bath and Beyond Inc. (Nasdaq: BBBY) experienced a surprisingly strong quarter, a nice sign that the ailing consumer may be showing renewed life.  State-owned Sinopec Shanghai Petrochemical Group (NYSE ADR: SHI) is attempting to purchase Swiss-based Addax Petroleum Corp. for $7.2 billion in what would be the largest global acquisition by a Chinese company.

Investors breathed a collective sign of relief when the final leg of the record $104 billion U.S. Treasury auction came to a close and interest rates had not soared through the roof.  Instead, institutions and sovereign funds seemed to maintain a hearty appetite for U.S. government securities, despite rumors to the contrary.  In recent weeks, naysayers have been predicting that foreign buyers would shun domestic fixed income as the ballooning U.S. deficit spiraled out of control with expensive new programs to cure all that ailed the country.  For the time being, at least, Treasuries remain a safe-haven investment, and the yield of the benchmark 10-year bond even fell to around 3.5%.

From an equity standpoint, investors remain confused about the future direction of the markets and whether to ride the prior upward trend or take profits from the rally that exceeded 30% in anticipation of a return to the lows set in early-March.  Some believe the indexes will trade sideways for the foreseeable future.  The Dow Jones Industrial Average lost ground (thanks in large part to Boeing), while other major indexes closed relatively flat from the prior week’s levels.  Despite a bit of volatility, oil hovered neared $70 a barrel level and gasoline prices fell slightly for the first time in two months.

While the economic numbers appear to be getting stronger (see below), many investors want to see more than just “less” contradiction or “slower” weakness in the economy and various sectors.  Many believe that the “worst of times” may be over, but the “best of times” may still be far away.  Some even approve of the job Bernanke is doing (despite what their elected reps are saying).

Economically Speaking

A Congressional tongue-lashing didn’t keep Bernanke and Fed policymakers from completing their business at hand.  Last week’s policy meeting provided few surprises as the Fed left the benchmark Fed Funds rate unchanged at (virtually) 0% and announced that no rate changes seem likely in the near-term.  The Fed also confirmed its intent to buy $1.45 trillion in mortgage-related securities and $300 billion in Treasuries, though made no commitment to purchase more than that previously announced amount.  The accompanying statement depicted an economy that remained weak, but seemed to be exhibiting some signs of rebounding (ever so slightly).  For the time being, inflation (or even deflation) does not appear to be of major concern.  The policymakers also continued to apprise the public on the success of the various “stimulus” actions and announced the closing of several lending programs that they no longer deem necessary.

The World Bank said the worldwide slump would be worse than it has previously projected, boosting its forecasted slump to 3% from the previous forecast which called for a slump of 1.75% – and claimed that activity would be the worst on record.  By contrast, the Paris-based Organization for Economic Cooperation and Development reported that the “worst may soon be over” and revised its economic forecast to more favorable terms for the first time in two years.

Among weekly releases, new home sales declined in May and existing home sales rose less than expected as much of the buying centered around distressed sales and foreclosures.  The median price of an existing home purchased in May was more than 16% below last year’s level.

Higher durable goods orders lent some confidence to manufacturers, as activity rose for the second consecutive month.  Personal income and spending both increased in May and the administration was quick to praise the benefits of the stimulus package.  However, the savings rate also climbed to its highest level in 15 years as consumers remained uncertain about the economy in general and their job situations in particular.  On a bright note, the Reuters/University of Michigan Sentiment index increased to its highest level since February 2008. Gross domestic product (GDP) in the first quarter was revised again – to minus 5.5% (from minus 5.7% reported last month), a positive sign, though impatient economists and investors alike seem ready for even better (positive) data in the quarters to come.

Weekly Economic Calendar

Source: Will Week of Controversy Undermine Financial System Overhaul That Calls for Broad Expansion of Central Bank’s Power?

Peter Schiff: Why this Money Should Replace the U.S. Dollar There’s a new universal currency, backed by solid gold. You can use it to make online purchases anywhere in the world. Converting some money to the new currency takes just 5 minutes. You can start with as little as $10… or as much as $10 million. According to CNBC star analyst and Euro Pacific Capital President Peter Schiff, this money could double the value of your savings – automatically – in just 6-9 months. For Schiff’s full analysis and recommendations, please go here.

Exxon’s Azulao-1 well tapped a reservoir that reportedly contains as much as 8 billion barrels of recoverable oil, says Luiz Lemos, a partner at TozziniFreire Advogados, a Brazilian law firm that represents foreign energy companies.

“This is very huge,” Lemos told Bloomberg News.

So is the potential benefit for Brazil. If Lemos’ estimate is accurate, this new Azulao find will rival the nearby Tupi oil field as the largest discovery on this side of the planet since Mexico’s Cantarell field was discovered in 1976.

Lemos’ estimate is unconfirmed, but Exxon Mobil Chief Executive Officer Rex Tillerson described the find in January as “a huge potential resource.”

Exxon first notified Brazilian regulatory agency National Petroleum Agency that it discovered hydrocarbons in the reservoir, identified as BM-S-22, on Jan. 16. The world’s largest oil company operates the block with a 40% stake. Hess Corp. (HES) also holds a 40% interest and Brazilian state energy company Petroleo Brasileiro SA (ADR: PBR), known as Petrobras, holds the remaining 20%.

It was Petrobras that first triggered the rush on Brazil’s energy sector when, in November 2007, the company announced the Tupi discovery – an underwater field that could contain as much as 80 billion barrels of oil equivalent.

Petrobas actually downplayed the findings of the Tupi oil field before announcing last November that the reserve contained between 5 billion and 8 billion barrels of light oil and gas.

Petrobras will begin extract its first crude oil from Tupi on May 1. Initial output from the Tupi field is expected to be around 15,000 barrels per day, then rising to 30,000 barrels a day during a later stage of testing, and eventually reaching about 100,000 barrels per day by 2010, Reuters reported.

If Tupi lives up to analysts’ expectations, it will be very encouraging not just for development of Azulao, but also the Carioca reserve, another massive field expected to hold a large bounty of petroleum.

Last year, Haroldo Lima, the head of Brazil’s National Petroleum Agency, said Carioca could hold 33 billion barrels of oil and gas. Upon hearing the news, brokers and analysts rushed to tell their clients that Brazil, as one minister put it just months ago, was about to become the “new Saudi Arabia.”

Experts say that even 10 billion recoverable barrels of oil – whether they come from Tupi, Carioca, Azulao, or a combination of all three – would be a remarkable find and enough to catapult Brazil into the world’s oil-producing elite. Brazil currently has about 12 billion barrels of proven reserves, and could soon find itself nestled between Nigeria (with 36 billion barrels) and Venezuela (80 billion).

Foreign Oil Majors Flock to Brazil

As rich and expansive as Brazil’s oil reserves may be, they are also very difficult to access. The Carioca field, for instance, is 170 miles offshore, more than 6,000 feet below the surface of the water, and trapped beneath a shelf of salt 500 miles long and 125 miles wide.

There is no question that extraction will be costly, but even at today’s energy prices there’s no shortage of domestic and foreign companies ready to invest big money Brazil’s energy sector.

In fact, Manuel Ferreira de Oliveira, chief executive officer of Portugal’s Galp Energia SGPS SA, said March 4 that production at the Tupi sub-salt oil field in Brazil is viable — despite the slide in international oil prices.

“Production at Tupi is competitive, even at the actual level of oil prices,” Oliveira told the Estado news agency, on the same day that his company released its fourth-quarter earnings. “The projects in Brazil are going to gain strength this year and the next.”

Exxon said Thursday that it would continue investing in exploration and production at “record levels,” despite the economic downturn and plunging oil and gas prices that have reduced spending by some competitors.

Exxon will invest $29 billion this year, and reiterated plans to invest between $25 billion and $30 billion annually over the next five years.

The company is currently spending $79 million a day to search for oil fields, construct platforms and renovate refineries Bloomberg reported.

China is also looking to become a long-term partner in Brazil. China Development Bank last month agreed to lend Petrobras $10 billion to help finance deepwater oil exploration off the coast of Brazil.
Oil exploration will be carried out with the participation of Sinopec (ADR: SHI), the Chinese state oil company.

The contract will be finalized within the next two months so it can be signed when Brazilian President Luiz Inácio Lula da Silva visits China in May, according to Petrobras Chief Executive Officer Sergio Gabrielli.

In addition to the exploration partnership, the deal signed between Petrobras and Sinopec includes the supply of 60,000 to 100,000 barrels of oil per day in the current year. Petrobras also signed a memorandum of understanding with state company China National Petroleum Corporation (CNPC) for the supply of 40,000 to 60,000 barrels per day.

Last month, Petrobras announced plans to invest $174.4 billion in exploration and production.

Energy demand in Brazil is “already starting to recover,” Petrobras CEO Gabrielli told Reuters during an interview at a Brazilian investment conference. “Even the fall in demand during the last quarter of 2008 was within a range we could expect for that season.”

In addition to Exxon and Petrobras, the companies that stand to profit the most from Brazil’s energy renaissance are offshore drilling companies such as Transocean Ltd. (RIG) and Diamond Offshore Drilling Inc. (DO), which was recently recommended by Contributing Editor Horacio Marquez in his weekly “Buy, Sell or Hold” feature.

Devon Energy Corp. (DVN) also made headlines last week when it notified regulators that it found traces of natural gas in the Barreirinhas Basin. Larry Nichols, chief executive officer of Devon Energy, said Monday that prices for natural gas are close to recovering from their recent drubbing.

“When the recession ends and the economy starts booming, we’re going to have less natural gas than we do today and prices are going to spike back up,” Nichols said.

Source: Is Brazil the ‘New Saudi Arabia?’

Money Morning first reported in January, that China was building stakes in some of the world’s largest natural-resource companies, which have been made vulnerable by depressed commodities prices, tumbling profits and falling stock prices. In the scant few weeks since that Money Morning report was published, Aluminum Corp. of China Ltd. (ADR: ACH), or Chinalco, has invested $19.5 billion in Australian/British mining giant Rio Tinto PLC (ADR: RTP), and China Minmetals Corp. acquired Australian zinc miner Oz Minerals Ltd.

China Development Bank has been particularly active. Earlier this week, the bank lent $15 billion to OAO Rosneft Oil Co., Russia’s state-owned oil company, and $10 billion to the Russian state pipeline monopoly Transneft (PINK: TRNFF). In return for the needed financing, Russia agreed to supply China with 15 million tons of oil annually for 20 years.

China Development Bank struck a similar deal with Petrobras Friday, agreeing to loan the Latin American energy giant $10 billion to help finance deepwater oil exploration off the coast of Brazil.

Oil exploration will be carried out with the participation of Sinopec (ADR: SHI), the Chinese state oil company, the Macauhub reported.

The contract will be finalized within the next two months so it can be signed when Brazilian President Luiz Inácio Lula da Silva visits China in May, according to Petrobras Chief Executive Officer Sergio Gabrielli.

In addition to the exploration partnership, the deal signed between Petrobras and Sinopec includes the supply of 60,000 to 100,000 barrels of oil per day in the current year. Petrobras also signed a memorandum of understanding with state company China National Petroleum Corporation (CNPC) for the supply of 40,000 to 60,000 barrels per day.

Brazil is necessarily the country that comes to mind when taking inventory of the world’s top oil producers. It currently has about 12 billion barrels of proven reserves, but that figure could grow substantially now that a number of very rich deposits have been found off Brazil’s shores.

Petrobras happened across the second-largest oil find in two decades last year when it found between 5 billion and 8 billion barrels of untapped light oil in the Tupi basin. Even more impressive are the unofficial figures from a new reservoir, known as Carioca. That field could hold 33 billion barrels of oil and gas, which would make it the world’s largest discovery in at least 32 years.

With discoveries like these Brazil, currently ranked 13th on the list of the world’s top oil producers could, could easily move into the top ten.

The only problem with the Tupi and Caricoa oil fields is production costs. The Carioca discovery, for instance, is located 170 miles offshore, more than 6,000 feet under the surface of the water, and is trapped beneath a shelf of salt 500 miles long and 125 miles wide.

Developing oil fields such as these will be very costly and with crude oil trading below $40 a barrel financing is imperative. In that sense China couldn’t have timed its investment in Petrobras any better.

Petrobras said it plans to invest $174.4 billion from 2009 through 2013, compared with the $112.4 billion planned for investment for 2008-12. The company will invest $28.6 billion in 2009 alone.

In 2008, trade between China and Brazil totaled $36 billion making China Brazil’s second largest trading partner.

Source: China Continues its Commodities Binge with Brazilian Oil Deal

“The announcement of the Chinese fuel price increase sent the market sharply lower,” Michael Fitzpatrick, vice president for energy risk management at MF Global Ltd. (MF) in New York, told Bloomberg News. “This should have a big impact on demand.”

Crude oil for July delivery fell $4.75, a decline of 3.5%, to settle at $131.93 a barrel at 2:50 p.m. on the New York Mercantile Exchange, the biggest drop since March 31, according to Bloomberg data.

China, the world’s second largest oil consuming nation, has been subsidizing refined oil products to the tune of $25 billion a year, but now is bowing to the high cost of oil that recently flirted with prices near $140 per barrel as recently as June 16.

The Asia nation will raise both the cost of gasoline and diesel by $145.50 (1,000 yuan) per metric ton. The cost of jet fuel will also increase by $218.25 (1,500 yuan) per metric ton.

“Global crude prices have been rising sharply and Chinese domestic fuel prices have lagged behind. The price difference has highlighted the contradiction between demand and supply,” state television said, quoting the National Development and Reform Commission (NDRC), Reuters reported.

Refinery share prices gained on the news, as they will now receive a higher price for refined products. Sinopec Shanghai Petrochemical Co. (ADR: SHI) shares gained $1.20, a 3% increase, to close at $42.03 yesterday.

Oil consumption in China was expected to increase 440,000 barrels to an average 8.02 million barrels a day this year, according to a report from Organization for Economic Cooperation and Development.

“The developing countries, in particular China, have been driving demand growth,” Eric Wittenauer, an analyst at Wachovia Securities (WB) in St. Louis, told Bloomberg. “Subsidies and price caps insulate consumers from the full impact of higher prices. By rolling them back, some of the insulation is reduced and we can expect to see a demand response.”

It had been expected that China would wait until after the Beijing Olympics to increase fuel costs, as inflation is already high and the government is hoping to avoid social unrest while the nation is in the global spotlight due to the games.

Hoping to curtail potential consumer unrest, Beijing pledged subsidies to lower income groups that will be hardest hit by the price increase including farmers, fishermen and cab drivers, Reuters reported.

Source: Oil Drops as China Ratchets up Fuel Costs

• The World Trade Organization (WTO) has published a new draft of plans for a global trade deal that will be discussed the next time world trade ministers meet, BBC News reported. Although the plan doesn’t change existing tariff or subsidy cuts, it does offer some compromises and clarifies some key “sticking points.” Negotiators hope to have a deal closed by the end of the year.

• Battered by increasing steel costs and dampened consumer demand due to high gas prices, Ford Motor Co. (F) announced yesterday (Thursday) that it would not be able to meet Chief Executive Officer Alan Mulally’s goal of returning to profitability by 2009, Bloomberg News reported. North American vehicle production will be cut throughout the rest of this year due to “the rapidly changing business environment in the [United States],” a company statement read.

• First-time jobless claims fell 9,000 to 365,000, from a revised 374,000 the previous week, the Labor Department announced yesterday (Thursday), Bloomberg News reported. The decline was unexpected and indicates that companies are responding to the current U.S. economic slowdown by curtailing hiring, while trying to maintain current employees.

• Hong Kong’s Hang Seng index hit a one-month closing low yesterday (Thursday) in reaction to the declines in the U.S. markets. Oil firms Sinopec Shanghai Petrochemical Co. (ADR: SHI) and PetroChina Co. Ltd. (ADR: PTR) also weighed on the index. “Weak U.S. stocks and Beijing’s denial on an imminent deregulation of oil product prices hurt market sentiment,” Kenny Tang, associate director at Tung Tai Securities, told Reuters.

• Bookseller Barnes & Noble Inc. (BKS) yesterday (Thursday) reported a loss of $2.2 million, or 4 cents per share, for its fiscal first quarter ended May 3, compared with a loss of $1.67 million, or 3 cents per share, for the same period in the prior year, Reuters reported. Barnes & Noble reduced its full-year outlook based on the difficult economic environment and announced it would consider “the feasibility of a transaction” with rival Borders Group Inc. (BGP).

• The American Petroleum Institute, the trade group for major oil and natural gas companies, spent nearly $1.3 million in the first quarter to lobby on fuel economy standards, appropriations bills, and other issues, the Associated Pressreported. The API also lobbied on various pieces of legislation dealing with oil taxes and fees, renewable fuel standards, climate change, offshore drilling and more, according to the form posted online April 21 by the House clerk’s office.

• Bill Miller, portfolio manager at Legg Mason Capital Management, has not signed on to the Yahoo! Inc. (YHOO) investor coup being led by Carl Icahn. However, in an interview at a New York conference Wednesday, Miller, whose fund controls a 5.4% stake in Yahoo, said he wants Microsoft Corp. (MSFT) to reopen talks to buy Yahoo outright and not simply forge a joint venture. “It is a strategic imperative for Microsoft to change its position,” Miller told Reuters after speaking at the hedge fund conference.

• The International Energy Agency announced yesterday (Thursday) that it is studying depletion rates at about 400 oil fields in its first-ever study of world oil supply. The Paris-based group said the study, to be released in November, was prompted by concern about the volatility of world oil markets and uncertainty about supply levels.

• The spinal-products unit of medical-device maker Medtronic Inc. (MDT) will pay $75 million to settle accusations that it defrauded Medicare by telling doctors to bill in-hospital stay – even when a cheaper outpatient visit would have done the job, The New York Times and The Associated Press both reported. Originally, the accusations had been leveled against Kyphon Inc., which Medtronic spent $4.2 billion to buy in November.

Source: Global Investing Roundups: Friday, May 23rd, 2008