Thursday, January 29, 2009

China National Offshore Oil Corp. to invest $6.76 billion

The China National Offshore Oil Corp., announced yesterday that it plans to invest $6.76 billion US dollars in developing oil fields and in exploring / securing rights to new sources of crude oil and natural gas.

Investment figures are up about 18.9% according to the article published by Asia Pulse Pte Ltd yesterday, and accessible through this link to Rigzone.

"Seeking long-term increase in Chinese demand, the state-owned entity will continue with investment aimed at boosting its production capacity at a time when OPEC has reduced its own output.

The pie is being divided as follows. Oil field development will be getting $4.38 billion of the total investment and exploration for new oil and gas fields will receive about $1.1 billion.

So how to you decipher the meaning behind all this sudden spending? For starters, exploring for commodities when prices are as low as they are is quite risky. The reward can be potentially huge if legitimate and cost-effective discoveries are made, but new resources still take years to develop until they are extractable.

China is therefore being smart about things. Allocating the majority of the investment towards developing fields that will start to produce oil so that when demand does pick up it won't be left scrambling for crude. Furthermore, if demand does not pick up and the global economy continues to slow, China will not have wasted too much of the investment in finding new resources that there is no demand for.