Trump blacklists ExxonMobil’s Chinese partner in Stabroek Block

The Donald Trump Administration of the United States of America has blacklisted China National Offshore Oil Corporation (CNOOC), one of the largest national oil companies of China, alleging it to be linked to the Chinese military – the People’s Liberation Army. The action adds CNOOC to a blacklist of over 30 Chinese companies, such as Huawei, in America’s escalating trade war with China.

A November 12 issued executive order from President Trump precedes the addition of CNOOC to the blacklist. It banned Americans from investing in the firms, which it deems tied to the Chinese military on grounds that China “is increasingly exploiting United States capital to resource and to enable the development and modernization of its military, intelligence, and other security apparatuses…”
The order begins to go into effect on January 11, 2021 – nine days before the President-Elect, Joe Biden, takes office.

“China firmly rejects the United States’ unwarranted oppression against Chinese companies,” China’s Ministry of Foreign Affairs said.
“My guess is it’s CNOOC that got targeted, and not CNPC or Sinopec, because of its drilling in the South China Sea area, which is deemed as so-called military actions by the U.S.,” Lin Boqiang, dean of the China Energy Policy Research Institute at Xiamen University in southern China, was quoted as saying by Bloomberg.
CNOOC’s operations in the South China Sea have caused problems before, as Bloomberg said that it invited foreign drillers in 2012 to operate territories in which Vietnam had already awarded licences to oil companies, including ExxonMobil.

The other two companies Lin Boqiang mentioned, China National Petroleum Corporation (CNPC) and China Petroleum and Chemical Corporation (Sinopec), are two other large Chinese State oil companies. They are not on the US blacklist.

Why does this matter to Guyana?
CNOOC owns the very lucrative nine-billion-barrel Guyana Stabroek Block, in concert with American oil companies. ExxonMobil Corp. is the operator with a 45 percent stake, and Hess Corp. owns 30 percent. CNOOC Limited owns the remaining 25 percent.
In its 2019 Annual Report, CNOOC listed developments in the US sanctions regime as a risk factor for its business.

Trump’s November order does not appear to require ExxonMobil and Hess to sever ties with CNOOC, but CNOOC is watching closely and expects that such a sanction could follow.
“We could be prohibited from engaging in business activities in the U.S,” CNOOC said in its 2019 report, “or with U.S. individuals or entities, and U.S.-related transactions in our securities and distributions to U.S. individuals and entities with respect to our securities could also be prohibited.”
“We may also be subject to negative media or investor attention, which may distract management, consume internal resources and affect investors’ perception of our Company and investment in our Company.”

If CNOOC’s fears come fully to fruition – and some of them already have – the US sanctions regime could force the Chinese petroleum company out of the Stabroek Block. The sale of even a 25 percent stake in the block could rack up a hefty bill, given the size of the Stabroek Block reserves and CNOOC’s investments thus far in Liza Phases One and Two, and Payara. Liza Phase One started in December 2019, producing from a field of 450 million barrels with a Floating Production, Storage and Offloading (FPSO) vessel capable of producing as many as 120,000 barrels per day. Liza Phase Two and Payara, set for first oil in 2022 and 2024 respectively, are expected to each be able to produce as many as 220,000 barrels per day.