In 2005, CNOOC Ltd. (a subsidiary of China National Offshore Oil Corp.) was taken aback when its $18.5-billion bid to acquire Unocal Corp., headquartered in El Segundo, California, was opposed by U.S. officials. It later withdrew its offer, opening the way for Chevron Corp. to proceed with its eventual Unocal acquisition.

Behind the scenes, it was said that CNOOC was interested primarily in Unocal's considerable Asian E&P assets, and would spin off many or most of the U.S. properties and operations. Some observers thought the Chinese would be hesitant to launch another effort to acquire a large U.S. oil and gas company.

But China's voracious appetite for energy has trumped all. Political sensitivities have not stopped China and other major Asian buyers from steadily advancing their global oil and gas interests. CNPC (China National Petroleum Corp.), China's largest oil and gas producer and supplier, now has a presence in 30 countries.

In October, two Chinese sister companies announced noteworthy deals. CNOOC announced it will pay $1.08 billion in cash and fund $1.08 billion of drilling carries through 2012 for a 33.3% interest in Chesapeake Energy Corp.'s 600,000 net acres in the Eagle Ford shale. This equates to about $10,800 per acre, in line with other recent transactions in the play.

Also in October, Sinopec (formerly China Petroleum & Chemical Corp.) bought a 40% stake in Spanish company Repsol's offshore Brazil unit for $7.1 billion.

Indeed, over the past couple of years, the worldwide list of mergers, acquisitions, major investments and joint ventures involving not only Chinese but other significant Asian interests (including South Korean, Indian, Malaysian and Japanese) has exploded in both average deal size and global significance.

What's the motivation behind all this megadeal-making? Are the Asians offering to pay greatly inflated prices—prices that surpass what Western companies are willing to pay—for companies, properties and joint-venture stakes? And is there a renewed cause for concern in the West?

"Our analysis indicates the Asians—and more particularly the Chinese—are paying more, with higher considerations for the assets they are acquiring," says Norman Valentine, a senior analyst with Wood Mackenzie Ltd. in Edinburgh, Scotland. "Perhaps the implication is they are assuming higher longer-term oil prices than the current indication in the market."

It's interesting, in that case, that the Asian entities—including national oil companies CNOOC, Petrochina and Sinopec in China, the Korean National Oil Co. (KNOC) and KOGAS in South Korea, Petronas in Malaysia, Reliance Industries and ONGC in India, and several Japanese independent conglomerates including Mitsubishi, Mitsui and Sumitomo—are themselves taking an active role in bidding deal prices skyward.

"I think it's dangerous to generalize across such a wide group of companies—across Japanese, Korean, Indian, Chinese and Malaysian companies," says Valentine. "But I think for some of them, there is an identifiable objective.

"Governments are, not to say 'requiring,' but 'encouraging,' them to secure overseas energy supplies in the form of oil and gas, especially for China, which as everyone knows, faces an increasing oil-import requirement and increasing reliance on countries in the Middle East for its oil supply."

Some analysts view the Chinese government's strategy for its state-controlled energy companies regarding oil and gas reserves and other hard assets as being quite focused.

"The Chinese state-owned entities—whether it's the national oil companies or the sovereign wealth funds, such as China Investment Corp.—in our eyes clearly have a long-term strategic mandate from their government," says Christopher Sheehan, director of merger and acquisition research at IHS Herold. "And we believe they will do whatever is necessary, within the bounds of the M&A market, to ensure their sustained economic growth in China.

"This will be fueled by investment in energy resources around the world. That's clearly the main strategic driver behind the Chinese expanding their global upstream footprint through the M&A marketplace."

On a somewhat smaller scale, the South Korean government has signaled its own determination to secure energy supplies through its state-owned entities.

"South Korea has both a global reserve and a production target for its national oil companies by 2012, and that is 300,000 barrels of oil equivalent per day of production, and 2 billion barrels of reserves," Sheehan says. "And the Koreans need to use the M&A market to be able to reach those targets."

With that mandate from the government, Korean National Oil Corp. and KOGAS have been very active in making acquisitions around the globe, including North America. "As a result, the Koreans certainly have become a formidable force in terms of bidding for assets," says Sheehan.

"It's not on levels comparable to the Chinese, but it's certainly significant enough that they have billions of dollars to spend in the upstream M&A marketplace. And they will do so over the next couple of years."

Other Asian countries have their own motivations for participating more aggressively in worldwide oil and gas markets. That they are proceeding with expanded oil and gas activity reminds buyers and investors that the insatiable demand for oil and gas has created a world marketplace.

"The Japanese have accelerated their joint-venture/acquisition activity, focusing on North American shale gas," says Sheehan. "And the Indian conglomerates, as well, have been very aggressive of late—Reliance Industries in particular—in the North American unconventional shale-gas basins."

One of the key drivers, he adds, is the desire to gain technical knowledge of and expertise in unconventional gas ahead of a shale bid round planned by the Indian government for 2012.

Billion-dollar Moves

Strong fundamentals have allowed and prompted Asians countries to ratchet up their worldwide oil and gas participation, with cash reserves that are astounding.

China and South Korea, specifically, have for several decades enjoyed enormous trade surpluses with multiple Western economies, to the extent that China, for example, now counts among its paper assets up to US$2.5 trillion in cash, with another US$2 trillion-plus of cash reserves in the collective possession of many of the other now-vibrant Asian economies.

"We can characterize the tremendous economic growth in terms of what I call 'the rise of the Asian tigers,'" says Michael Wang, director of IHS Herold's Significant Energy Assets on the Market (SEAM)™ research service. "These economies have been growing for the past 30 years, despite the recent global economic crisis.

"Today, China is the second-largest economy in the world behind the U.S., having surpassed Japan, the U.K. and Germany. Several hundred million Chinese have been lifted out of poverty, and are now consumers." And consume, they do.

With the statistics admittedly skewed over the past couple of years by the severe global economic downturn, China has nevertheless become the No. 1 new-car market, for example, for the reconstructed General Motors Corp., as Americans have opted instead to stand pat or purchase late-model, used vehicles.

"Relatively speaking, China had practically no privately owned cars 30 years ago," Wang says. "China now is the world's largest private-car market. And you have this huge economic growth in China and elsewhere in Asia, with consumers demanding new cars and air-conditioning units and the comforts of life, all of which require lots of oil."

China today is the face of a 21st-century Asia that requires ever-larger daily, weekly, monthly and yearly quantities of petroleum products as well as metals and other raw materials that are the basic building blocks of economic activity and prosperity.

And the Asians have flexed their newfound economic muscle throughout the world, buying resources including copper, potash, bauxite and iron ore, as well as gold. In fact, the Chinese are currently the largest investors in Africa, attracted by the continent's metals and mining in addition to oil and gas.

"The major drivers behind the Chinese acquisitions and joint ventures start with—No. 1—energy security," Wang says. "Then, No. 2, as a hedge against oil imports. The Chinese want to acquire oil and gas fields outside China as a hedge against their voluminous oil imports.

"Driver No. 3 is to put some of the enormous paper wealth the Chinese have accumulated into hard assets, to diversify away from cash, with its depreciating value, and purchase hard assets in the form of natural resources.

"And driver No. 4 is that the Chinese companies want to behave more like the international supermajors, replacing and/or increasing oil and gas reserves and production and increasing shareholder value."

A potentially giant resource in which Chinese companies are making considerable investment is the oil-sands region of western Canada. In 2009, Petrochina entered into a joint venture with Canada's Athabasca Oil Sands Corp., and sovereign-wealth fund China Investment Corp. bought a substantial percentage of Canada-based Teck Resources Ltd. Sinopec several months ago acquired a stake in Syncrude Canada Ltd., and additional Chinese/Canadian deals are either being negotiated or are in the preliminary planning stages.

As the Chinese and other Asians participate more fully in the global oil and gas marketplace, some of the economic implications are clear: valuations are rising and competitive bids are plentiful. But opinions as to whether the growing Asian investment should be considered a positive or a negative vary widely.

"Asian oil and gas acquisitions and investments have pushed up oil and gas reserve valuations to record levels in certain parts of the world, such as Africa and Brazil and other major developing plays," Wang says. "And they have either outbid Western majors or have caused Western majors to have to counterbid aggressively to win individual deals.

"We're now seeing, for example, Western majors and Chinese NOCs bidding aggressively against one another in Africa and in Latin America, and also for oil-sands assets in Canada. The Chinese are able to do this because they are sitting on $2.5 trillion, primarily in U.S. dollars, but also euros, yen and other hard currencies from their trading partners. And the Chinese foreign-trade surplus, by the way, continues to grow at a clip of more than US$100 billion a year."

Blessing or Curse?

All of this could be viewed as a bellwether, a warning, or simply a reflection of the current raucous economic times.

"This is all a 'mixed blessing,' depending on who you are," Wang says. "If you're the chairman and CEO of ExxonMobil or BP or Shell, you should be concerned. On the one hand, the Asian NOCs are competitors, and you have to outbid them.

"On the other hand, they can also be your financiers. Chesapeake Energy recently went to Beijing and raised US$900 million in a preferred-stock offering as well as negotiating a US$1.6-billion Eagle Ford shale joint venture with CNOOC Ltd. Chesapeake could not raise that kind of money on Wall Street in today's economy. So overall, the Asian presence is a positive. It should not be viewed with undue alarm."

Jefferies & Co. advises companies around the world in energy transactions, and has worked with Asian and other foreign players as well as Western oil and gas companies.

"I think these Asian companies are recognizing potential looming energy constraints a lot earlier than anyone else is, probably because most of the Asian countries have more centralized planning," says Bill Marko, a Houston-based managing director with the energy group. "And the Asians certainly take a longer view in terms of planning.

"We in the U.S. take kind of a quarterly, next-election-cycle view: quarterly if you're a business, election cycle if you're a politician. So we don't have the long view in the U.S., but the Asians are recognizing that energy will be in shorter supply, and demand will continue to grow rapidly especially in China and India.

"And the Asians are getting out ahead of a lot of people in terms of considering new areas of energy to invest in. They're opening up their lens to new ideas and new areas of the world and new earlier phases of the life cycle, like in exploration. They recognize the looming challenge of energy supply in the future—and that also translates to the cost of energy, so they're trying to address it right now."

Also familiar with the Chinese, through his work as a consultant, is Michael Economides, Ph.D, a professor at the University of Houston's Cullen College of Engineering and author of Energy: China's Choke Point.

Somewhat suspicious of China's underlying motives in its recent global oil and gas transactions, Economides, who is advising a couple of Chinese companies involved directly in the energy equation, says, "We are witnessing the largest peaceful transition of power—in other words, without a war—in the history of humankind."

Economides is adamant that the U.S. and other Western countries are guilty of negligence by not engaging in greater worldwide-energy action in the face of Asian, and specifically, Chinese, hyperactivity in the global energy field.

"Look, I'm not an ideologue," Economides says. "But the American public—and the West, in general—should be concerned about this. China was going to dominate economically anyway because of its industrial prowess, and the necessary fuel of that economy is energy."

It's a philosophical stand that Jefferies' Marko relates to primarily in terms of a severe competitive challenge.

"We in the U.S. are not seeing the big picture, whereas the Chinese do," he says. "My philosophy is that we shouldn't and don't need to paint the Chinese as 'the enemy,' like the Soviet Union was, say, during the Cold War.

"But we should paint them as a really good, really strong potential competitor in just about everything we do."