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Published: March 17, 2010
Here's a brief three-part history and
economics primer, followed by some advice on how to make money
from it.
The Past
Nearly a half-century ago, on Dec. 14, 1960, the United Nations
passed Resolution 1514, a declaration on the granting of
independence to colonial countries and peoples.
Though far less eloquent than Thomas Jefferson's Declaration of
Independence, the United Nations' missive is nevertheless a
profound statement in support of liberty and the right of self
determination.
"Recognizing the passionate yearning for freedom…convinced that
the continued existence of colonization prevents the development
of international economic cooperation, … [and] affirming that
peoples may, for their own ends, freely dispose of their natural
wealth and resources," the declaration holds that "the
subjection of peoples to alien subjugation, domination and
exploitation constitutes a denial of fundamental human rights."
The Present
Countries don't colonize anymore. Today, if the British Empire
needs tea, tobacco or beaver pelts, it buys them for cash rather
than sending the Royal Navy. If the French need rubber, ivory or
timber, they import them rather than functionally enslaving the
Congo.
And if Red China needs oil, it doesn't send Chairman Mao's army
(Proud motto: Every man a private), it sends a state-owned
company.
That company is Cnooc (NYSE: CEO).
And it is on the march.
Recently, Cnooc -- China National Offshore Oil Company --
sealed
a ten-figure deal to acquire a third of the massive Tullow find
in Uganda, a region thought to contain several billion barrels
of oil. Cnooc is also developing a 2.5 billion-barrel field in
Iraq. And late last year Cnooc inked a deal with Venezuela to
gear up production in a field in the eastern part of that
country.
Now, after several British firms say they've found oil in an
area north of the Falkland Islands in the South Atlantic, Cnooc
has spent $3.1 billion to buy a stake in nearby Argentina,
Bolivia and Chile.
The Future
China's growth targets for the foreseeable future are off the
charts. For 2009, when the rest of the world was mired in
recession, China's economy grew +8.7%, besting even the
government's own optimistic targets. This year, growth is
expected to come in at a sizzling +9.6% before "decelerating, in
the words of The Economist Economic Intelligence Unit, to a mere
+8.1% growth in 2011. Some observers have suggested that
sustaining an extremely high level of economic growth is
necessary to contain civil unrest.
They have a point. The Chinese government may not afford its
citizens many human rights -- the latest U.N. report on the
subject called conditions there "poor and worsening" -- but the
people are absolutely demanding improved economic conditions.
That means great wealth for a few (Forbes says China has 89
billionaires) and it means modest affluence for scores of
millions. Result: Cars. Over the next 40 years, the world's
automotive fleet will quadruple. In 2050, China will have more
vehicles on its roads than there are cars on the planet today.
How to Make Money from It
Cnooc, which is the Chinese company that deals with oil outside
of China's borders, isn't going to quit buying up crude reserves
anytime soon. And though it has inked deals with governments
directly -- Venezuela, to name one -- it mostly deals with
companies. The Argentine deal, for example, involved Cnooc
paying $3.1 billion for a stake in a company called Bridas
Energy Holdings. It also paid dearly for a sizable stake in
Tullow's find.
The clear fact is that this company is unconstrained by
geography or even economy. It's going to buy oil wherever it can
for as much as it takes. The smart money bet is that Cnooc will
continue to develop fields in Africa and South America and that
it will keep its finger on the pulse of Iraq with an eye toward
expanding whenever possible. No one should be at all surprised
if Cnooc begins to eye the possibilities of deepwater wells in
the Gulf of Mexico or even to start buying up U.S.-based
independent producers such as Berry Petroleum (NYSE: BRY)
or Plains Exploration & Production (NYSE: PAA).
While the era of colonization is over, the age of the
corporation is here and here to stay. Cnooc, which is partially
public-owned and whose
ADRs are traded on the NYSE under the ticker CEO, is setting
up corporate colonies all over the world with three facts in
mind: There's only so much oil left. The Chinese government
wants it. The Chinese government will pay for it.
Growing Chinese control over the world's natural resources is
inevitable. Investors who position their portfolio to benefit
from these large government actions appear to be putting
themselves in a position to profit, either from ownership in
Cnooc or by taking positions in companies with assets Cnooc
needs.
-- Andy Obermueller
Chief Investment Strategist
Government-Driven Investing |
