The new frontiers of oil

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Introduction

U.S. oil firms are always forging new oil frontiers to increase the availability of oil supply. From the giant Kashagan field in the northern part of the Caspian Sea to the pre-salt zones deep  below the sea surface offshore Brazil, they are combating all kinds of complicated natural environments to get the oil out. With oil prices often at more than $100 a barrel, companies are willing to take risks in uncharted territories.

The U.S. government has launched different programs to improve the investment climate for those future big suppliers. For example, the State Department’s Energy Governance and Capacity Initiative provides foreign aid to help countries build a better fiscal system. David Goldwyn, former international coordinator of energy affairs, said that countries were much more likely to take American advice when they were not enriched with oil money and by helping them, the U.S. government also gained some “diplomatic capital.”

“When things eventually go wrong in the country as they almost always do at some point,” he said. “then the U.S government has some leverage, frankly, to hold that government accountable because it played an significant role in getting them to be the competitive producer in the first place.”

U.S. oil companies are not the only ones operating in these emerging producing countries. Their oil potential has lured companies from all over the world, such as China. Chinese national oil companies, fueled by growing domestic demand, have been actively courting the governments of those new producers for exploration and production contracts. According to former State Department officials, their presence is not a threat to U.S. energy security interests yet because it is still modest in many countries. But the way Chinese national oil companies operate has posed a challenge to U.S. good governance goals.

China is famous for its so called no-strings-attached approach. It doesn’t ask for changes in how these countries manage their oil revenue as a conditionality of its loans and aids. Instead, it wants secure oil supply as payments. Critics say this approach has strengthened the power of many oppressive regimes.


Ghana

Ghana, projected to be among the top 50 oil producers once its Jubilee Field is in full production , was President Barack Obama’s first destination on his trip to Africa in 2009. Obama outlined his foreign policy goals for Africa in an address to the Ghanaian Parliament, singling out energy as one area where America can do more to promote trade and investment in a “meaningful way.”

The country attracted worldwide attention in 2007 when British wildcatter Tullow Oil discovered the Jubilee Field, whose potential Tullow estimates may be as high as 4.5 billion barrels of oil. The Jubilee discovery is one of the largest in West Africa over the last two decades.

Compared with most African countries, Ghana is a relatively safe and stable country in which to operate and continues to be a preferred country in Africa for U.S energy firms. Kosmos Energy and Anadarko Petroleum Corp. are two major American companies operating there. They each have a 23.49 percent working interest in Jubilee.

One of the impediments to a more robust U.S-Ghanian energy relationship was Kosmos’ attempted sale in 2009 of its stakes in the Jubilee Field to Exxon Mobil for about $4.3 billion. The deal expired in 2010 after the state-run Ghana National Petroleum Corp. refused to recognize the sale, which was necessary for it to go forward.

The deal irked many Ghana officials, including former President John Mills, because GNPC was not part of the negotiation. GNPC accused Kosmos of sharing confidential oil exploration data with as many as 20 oil firms without its consent.

China has shown considerable interest in Ghana’s oil sector. Prior to the end of the deal between Kosmos and Exxon Mobil, a Chinese national oil company, CNOOC, entered talks with GNPC to make a rival $5 billion bid challenging Exxon Mobil’s $ 4 billion offer. The bid was later refused by Kosmos , which said it now intended to stay in Ghana as an oil producing firm.

Currently, Tullow Oil is the leading operator in the country, with a 49.95 percent working interest in Deepwater Tano and 26.4 percent one in West Cape Three Points. According to a 2009 Congressional Research Service report, as many as 50 oil firms may be interested in buying stakes in Ghana’s oil sector. They range from private companies such as Chevron Corp., BP PLC and Royal Dutch Shell to China’s CNOOC.

The first barrel from the Jubilee came out in 2011. Tullow said the company’s gross production averaged 66,000 barrels a day that year. About 120,000 barrels of oil per day may be produced once full rates of production are reached.

The State Department has designated Ghana as a tier one participant in the U.S. Energy Governance and Capacity Initiative, a program to help future oil producers manage their oil revenues to promote transparent energy sectors and ensure the security of oil and gas supplies.

In a 2010 cable obtained and published by Wikileaks, the State Department said that it believed the EGCI programs can “make a difference” in targeted countries, all of which are likely to receive tens of billions of dollars in oil and gas revenue during the coming decade.

According to another leaked 2010 State Department cable, Mills, while president, expressed “without reservation” to Assistant Secretary of State for African Affairs Johnnie Carson that he was committed to the rule of law so Ghana would account for all oil revenues in a transparent manner.

Mills also said in the cable that Ghana’s oil revenue belongs to the people and the country’s leadership will do “what is right” despite the challenges.

 


Kazakhstan/The Caspian Sea

Kazakhstan in Central Asia holds an estimated oil reserve of 30 billion barrels, the 12th largest in the world, luring oil companies from the United States, China and elsewhere to the Caspian Sea region in what is being termed the “black gold rush.”

Discovered in 2000, the Kashagan oil field near the harbor city of Atyrau has an estimated reserve of 11 billion barrels. Oil firms haven’t seen such a huge discovery in four decades. On top of that, Kazakhstan already has the Tengiz field, which holds up to 9 billion barrels and is about the size of Chicago.

American oil giant Chevron Corp. started negotiations to develop the Tengiz field with the Soviet Union in 1990 and began to work in the field in 1993. It is now the largest producer in the region, holding a 50 percent stake in the Tengiz field, whose daily production of 520,000 barrels accounts for about one-third of the country’s total output.

Steve LeVine, a fellow at the New America Foundation and author of “The Oil and the Glory,” a book about the oil rush in the Caspian Sea, said U.S. policy is aimed at making this area “a pro-western swath of territory between Russia and Iran” in a 2007 panel discussion. The landlocked Kazakhstan and other Caspian countries such as Azerbaijan and Turkmenistan traditionally relied on a pipeline system running through Russia that delivers their oil to Black Sea ports. Designed by the former Soviet Union, the system maximized transport of oil for Russia, giving the country almost complete control over Kazakhstan’s exports following the Soviet Union’s break up.

Now these countries are enmeshed in negotiations over potential pipeline routes and fees they would pay the former Soviet Union as demand for their oil rises dramatically in other parts of the world.

In a 2009 interview with the European newspaper New Europe, former U.S. Ambassador to Kazakhstan Richard E. Hoagland said that it was long-term U.S. policy to support oil transportation out of Central Asia because American companies considered Kazakhstan an“important strategic partner and an attractive long-term investment opportunity.”

“We have nothing against Kazakhstan participating in projects with Russian partners,” he said. “We just don’t think it is wise for any one country to have monopoly control over Kazakhstan’s export options.”

Starting in 2001, the State Department and Kazakhstan established an energy partnership in which Washington provides assistance to diversify Kazakhstan’s oil and gas export routes.

According to Hoagland, the U.S. encourages Kazakhstan to further consider the Trans- Caspian oil pipeline, which would go under the Caspian Sea to provide a western export route for both Kazakhstan and Turkmenistan. Russia and Iran, both coastal states of the Caspian Sea, said the project must get approval from all five costal states to go forward and even so, they oppose it on the grounds that it is too environmentally damaging.

China also has a lot of interest in Kazakhstan’s oil. The 1,384-mile Kazakhstan-China pipeline runs from the Atyrau port in northwestern Kazakhstan to Alashankou in China’s northwest Xinjiang region. According to the U.S. Energy Information Administration, the pipeline’s capacity is being expanded from 240,000 barrels a day to 400,000 barrels a day.

In addition to export problems, boosting Kazakhstan’s oil output is a big challenge. Start of production of the Kashagan project has been pushed back to 2013 from the original scheduled start date in 2005 while a consortium of oil companies including Kazakhstan’s national oil company KazMunaiGas, Exxon Mobil Corp., Royal Dutch Shell and French oil giant Total, builds a mammoth island in the northern part of the Caspian Sea to combat extreme weathers and shallow waters that make the transportation of heavy equipment very costly.

More than $30 billion has been spent on the Kashagan project already, three times the original estimate of $10 billion.

The delay has strained the relationships between western oil companies and the Kazakhstan government, which counts on the project to double the country’s current daily output of 1.6 million barrels.

Another impediment to realizing the region’s energy potential is the legal status of the Caspian Sea. Despite repeated efforts, so far only Azerbaijan, Kazakhstan and Russia have reached agreement on the ownership of the sea’s resources among all littoral states.

 


Brazil

The largest oil discoveries in recent years have been in Brazil’s offshore pre-salt basins, previously inaccessible until recent developments in deep-water drilling technologies offered a way to get at a huge reserve that some say may yield as much as 50 billion barrels of oil.

The pre-salt zones under the seabed off Brazil’s coast consist of irregular layers of salt up to a mile thick, or more, with the oil underneath that. In 2006, a consortium of Petrobras, Brazil’s state oil company, British’s natural gas firm BG Group PLC and Portugal’s Petrogal made the first significant pre-salt discovery in what is now known as the Lula field in the Santos Basin, about 155 miles off the coast of Rio de Janeiro.

Other pre-salt discoveries were announced subsequently in the Santos Basin. Petrobras said that the Lula field alone could hold up to 8 billion barrels of oil, more than half of Brazil’s total proven reserve, the majority of which is located off the country’s southeast coast in the Campos and Santos Basins.

Drilling for pre-salt oil is daunting. Companies have to go through about two miles of water, one mile of rock and another two miles of salt layer before reaching the oil, which often emerges scathing hot when first extracted from the reservoir.

The Petrobras website said that there is “no doubt” of the economic feasibility of commercially developing pre-salt oil and this venture is “guaranteed to be successful.” According to Petrobras, current production from its pre-salt fields is about 100,000 barrels per day. The company’s goal is to reach a daily production of more than 1 million barrels of oil by 2017 in the pre-salt operation areas.

In response, the U.S. has strengthened its energy cooperation with the country. A U.S.-Brazil Strategic Dialogue was created following President Barack Obama’s visit to Brazil in 2011. The two countries have held workshops and other events featuring offshore technologies, and the White House said it is “committed” to finding solutions to challenges for the safe and efficient development of Brazil’s oil reserves.

China, driven by its domestic energy demand, is willing to spend significantly in Brazil in going after the country’s rich oil resources. China Development Bank Corp. has agreed to lend Brazil $10 billion in return for oil supply for ten years. In June 2012, Brazil and China signed a $30 billion deal. China will make more investment in Brazil’s oil and gas field under the deal.

The arrangements between China and Brazil came after Obama said that he wanted the U.S to be one of Brazil’s best consumers during the 2011 visit to the country.

The pre-salt discoveries have also attracted the attention of many international oil companies, but they consider Brazil’s regulatory framework “debilitating” to future developments, according to a 2009 State Department cable obtained and published by Wikileaks. The Brazilian National Congress passed  legislation designating Petrobras as the chief operator of pre-salt projects, which the Brazilian Institute for Petroleum, an industry group representing major international oil companies operating in Brazil, said made it impossible to compete in bidding rounds with national oil companies such as China’s Sinopec and Russia’s Gazprom.

More than 90 percent of Brazil’s oil production is in very deep waters and of mostly heavy grades. Six of the Petrobras-operated fields in the Campos Basin account for more than 50 percent of the country’s crude production, according to the U.S. Energy Information Administration.

Petrobras says that the light and high quality pre-salt oil raises the company to a “new level of reserves and oil production.” According to its 2011-2015 business plan, the company wants to invest $53 billion in pre-salt exploration and production.


Iraq

Iraq, the world’s third largest oil exporter with the world’s fifth largest proven oil reserves, has been a major player in the global market for decades. But the country, which, according the International Energy Agency’s 2012 Iraq Energy Outlook, has only produced about 15 percent of its estimated recoverable resources, is set to assume a vastly important new role in the coming years as world oil demand increases. With countries like China expanding rapidly and requiring a larger share of the world’s supply, Iraq will be expected to provide a significant ramp-up in production in order to help stabilize global oil costs.

In the IEA’s Central Scenario, which outlines its predictions, Iraq will more than double its production to 6.1 million barrels per day by 2020 and reach 8.3 million barrels per day by 2035, and it stands to gain almost $5 trillion in oil export revenues between now and then. But a number of factors may prevent Iraq from meeting these desired output levels, and the IEA predicts that delay in production development could lead to volatile oil prices reaching almost $140 per barrel in 2035.

In a special presentation of the Iraq Energy Outlook in October 2012, the IEA’s chief economist, Fatih Birol, said that Iraqi will be responsible for about 45 percent of growth in global oil production through 2035. But he outlined threats to reaching that benchmark ranging from political unrest to lack of accessible supplies of water and technical expertise.

Birol also highlighted the lack of legal consensus on governance of the hydrocarbon sector, an issue that continues to make world headlines as oil disputes fuel disagreements between Iraq and its autonomous Kurdistan region in the north. Delays and differing opinions on hydrocarbons law have spurred Kurdistan to begin signing its own deals for oil and gas development with foreign multinationals despite fierce opposition from the central Iraqi government.

Iraq has long threatened repercussions against any company that signs a deal with Kurdistan, and it excluded Hess Corp. from an energy auction in 2011 after such an infraction. More recently, Exxon Mobil faced a similar penalty after disregarding threats from Baghdad and partnering with Kurdistan.  But later last year, Exxon Mobil went one step further, expressing a desire to pull out of the large-scale West Qurna-1 project in the Iraqi south to avoid further conflict over its interest in Kurdistan.

With so many looming variables that could affect oil output, the State Department is looking to play a part in securing the necessary investment and infrastructure development and protection in Iraq and other countries.  One such avenue is through the Bureau of Energy Resources, established in November 2011 as a direct result of the first Quadrennial Diplomacy and Development Review. With stated core objectives of energy diplomacy, energy transformation and energy transparency and access, the Bureau represents the State Department’s current view of what the term “energy security” comprises.

“In terms of the role the State Department plays, there’s a lot of things that vary by country: how we can facilitate and be a help, and is there a role which we can work on with each other as equals with the expertise we do have?” Principal Deputy Assistant Secretary Robert Cekuta said in an interview. “It’s certainly talking to Iraq about the geopolitics of its region; about how the market, how companies and how investors see the market and see the situation in Iraq; and what Iraq can do to help attract the outside capital.”

Cekuta said one mistake some countries have made is to try to do too much unilaterally instead of letting the market and private sector work to help them develop their resources. Fulfilling the IEA’s Central Scenario will a cumulative investment of over $530 billion, and Cekuta said the Bureau of Energy Resources is advising Iraq on how best to procure those finances.

“That’s a huge amount of money,” Cekuta said. “The question of getting the market conditions right and making yourself an attractive place for foreign investment is really key to that and has global consequences. These are things we can engage with Iraq and other countries on and talk about.”


The Arctic

The Arctic holds an estimated 13 percent of the world’s remaining undiscovered oil resources and 30 percent of its undiscovered natural gas resources, according to estimates by the U.S. Geological Survey. As global temperatures rise, the sea floor that covers the untapped reserves and that was previously locked beneath a layer of ice is now becoming accessible.

Royal Dutch Shell hoped to be the first company to commence drilling in the Arctic, acquiring the necessary permits for exploratory wells in 2012 after five years of delays and more than $4.5 billion in investments. But drilling in Alaska’ Chukchi Sea was halted on Sept. 9 of that year, just one day after it began. Shell could not demonstrate preparedness for a spill emergency in the Arctic’s cold, dark conditions and was restricted from drilling into petroleum reservoirs. Instead, Shell did exploratory drilling in the Chukchi and Beaufort seas until Oct. 31, the cutoff date before winter.

But Shell’s Arctic woes haven’t ended there. Most recently, at the end of last year, an Arctic drilling barge and its crew, en route to Seattle for maintenance work, were set adrift during a storm before the U.S. Coast Guard helped a tug vessel recover them.

The incident prompted U.S. Department of Interior to launch an expedited, high-level assessment of the 2012 offshore drilling program. The review is expected to be completed by March, 2013.

Other Arctic endeavors have faced similar setbacks. Technical challenges pose financial hurdles that can render projects unprofitable. In August, with the availability of American shale gas depressing prices and the decreasing European natural gas demand, Russian giant Gazprom pulled the plug on the development of Russia’s Shtokman gas field in the Barent Sea. The move came shortly after its partner company, Norway’s Statoil, returned its stake in the project.

While steady hydrocarbon extraction in the Arctic may not be feasible for a number of years, numerous countries are jockeying for position, which has caused diplomatic rifts. By ratifying the U.N. Convention on the Law of the Sea (UNCLOS), each country with Arctic territory is eligible to make a formal claim to it. Doing so grants countries a territorial rights extension of up to 150 miles of seabed and an exclusive economic zone of 200 miles off its coastline.  But those rights have fueled disputes over where the boundaries begin and end.

So far, territory-related issues in the Arctic have been resolved diplomatically, including a 40-year-old rift between Russia and Norway. But recent years have seen military demonstrations and flag-planting in undesignated polar areas by countries eager to display their Arctic posture.

The U.S. is the only Arctic country that has yet to ratify UNCLOS, which is due to opposition by Senate conservatives who say that the treaty will cost the U.S. trillions in royalties and threaten national sovereignty. Led by then-Senator Jim DeMint of South Carolina, this summer 34 Republicans submitted a letter to Senate majority leader Harry Reid re-asserting their commitment to blocking ratification.

Because it is not a ratifying country, the U.S. has not formally laid claim to its Arctic territory, which may be about the size of California, and cannot submit further territorial claims for the extended continental shelf.

U.S. treaty supporters have included the Pentagon and every U.S. president since Richard Nixon (though Reagan opposed it, substantial changes were later made to address his concerns). They argue that without ratifying the treaty, the U.S. cannot position itself as a leader in the region, which may become increasingly important as warming seas and melting ice give access to new sea lanes for use by non- Arctic nations such as China.

Without any Arctic territory of its own, China has been relying on investment and diplomacy to build up a presence in the region. Chinese officials visited Sweden, Iceland and Greenland this past year, and Chinese companies have already acquired stakes in Arctic-related companies and projects in Iceland, Greenland and Canada.

China is also lobbying – along with the European Union, Japan and South Korea – for permanent observer status on the Arctic Council, an intergovernmental policymaking body comprising eight countries. Inclusion would not grant them a vote, but it would allow them to present their opinions on matters that may soon include polar shipping.  A commercial trans-Arctic route would greatly benefit China, as it would dramatically reduce the amounts of time and money it spends on exports. But it could also put a Chinese presence close to home for the U.S., which so far has done comparatively little to bolster its own Arctic presence.

Shipping traffic, oil and gas exploration and tourism contributed to an increase in the responsibilities of the U.S. Coast Guard, which currently is not getting the support it needs to adequately protect the region. And unlike its Arctic counterparts, the U.S. has an obsolete fleet of icebreakers, with only one operative ship capable of carrying out the Coast Guard’s Arctic duties.  Stephen L. Caldwell, Director of Homeland Security and Justice, said in a December, 2011 testimony before the House of Representative’s Subcommittee on Coast Guard and Maritime Transportation that the Coast Guard has “limited capacity to operate in the waters immediately below the Arctic Circle.”

“Increasing responsibilities in an even larger geographic area, especially in the harsh and remote conditions of the northern Arctic, will further stretch the agency’s capacity,” Caldwell said.

Furthermore, in 2010 DHS reported that its annual budget was expected to remain constant or decrease over the following 10 years, meaning the Coast Guard is unlikely to receive the funding it needs to support its Arctic operations.


North Dakota

Oil and gas were first discovered in North Dakota in 1951, but it wasn’t until much more recently that engineer and entrepreneur George Mitchell’s ingenuity helped the state become the epicenter of  U.S. domestic energy revolution.

Mitchell took hydraulic fracturing, or “fracking” – a process that involves blasting rock with a mixture of sand, water and chemicals to create and prop open fissures through which oil and gas can escape – and tweaked it to unlock the Barnett shale field in his native Texas. With subsidies from the government, Mitchell drilled the Barnett’s first horizontal well in 1991 and had achieved commercial shale gas extraction, releasing previously unobtainable resources, by 1998.

The technology quickly spread to North Dakota’s Bakken formation. According to 2010 data from the U.S. Energy Information Administration, North Dakota has proven oil reserves of about 1.89 billion barrels and liquid natural gas reserves of 1.869 trillion cubic feet. Its Bakken shale is a deep basin deposit dating back 360 million years, and the oil it produces is commonly known as “tight oil,” referring to the shale’s low porosity and low permeability. Today, fracking, in combination with recent technology that allows for drilling horizontally and two miles deep into the heart of the Bakken, has rocketed North Dakota to second on the list of oil-producing states behind Texas. That has created thousands of jobs and revitalized the state’s economy.

But the effects of the ramp-up in American shale hydrocarbon production are much more widespread. The International Energy Agency’s 2012 World Energy Outlook, released in November, forecasts that the U.S. will become the world’s largest oil producer by 2020 and be nearly energy self-sufficient in net terms by 2035. The effects of such developments would be far-reaching. The U.S. providing a larger share of its own fuel would impact the global oil market by diverting the flow of less-dependable Middle Eastern oil east to rapidly developing countries like China.

“North America is at the forefront of a sweeping transformation in oil and gas production that will affect all regions of the world,” IEA Executive Director Maria van der Hoeven said in a news release on Nov. 12, 2012.

In January, 2013, North Dakota had 185 active rigs, operated by companies such as Whiting Petroleum Corp. and Hess Corp. So far, other countries have been unable to replicate U.S. success with shale hydrocarbon extraction, leaving the U.S. uniquely positioned as the pioneer in shale exploration. Exxon Mobil Corp. abandoned its shale gas projects in Poland earlier this year after encountering failure with post-fracking gas flow, and other countries such as China face problems like lack of water that make the process more challenging.

North Dakota Petroleum Council President Ron Ness called the Bakken region a hotbed for innovation.

“At this point, people across the world are looking at the technology we’re employing,” Ness said in an interview. “It’s essentially one big research lab for the world. If you can take this technology to other places, it certainly has the ability to not only change our nation’s energy security, but also the world’s energy security.”


Canada

Canada has the third-largest proven oil reserves in the world behind Saudi Arabia and Venezuela thanks to its oil sands, which contain a viscous unconventional petroleum deposit. The oil sands are largely concentrated in the Athabasca deposit, which sits in the northeast corner of Canada’s Alberta province.

Oil sand is composed of sand, minerals, water and bitumen, an extremely heavy crude oil. Dr. Karl A. Clark’s hot-water bitumen extraction process, released in 1929, is the basis for today’s large-scale production. Oil sands can be extracted through surface mining or in situ techniques, such as steam-assisted gravity drainage.

A wide range of oil companies operates in the oil sands, including private Canadian companies, state-owned companies like China’s Sinopec and international private-sector companies such as Shell, BP, Exxon Mobil and Chevron.

Canada, which is the top source of U.S. energy imports, holds 170.4 billion barrels of oil recoverable with today’s technology and at a competitive price, and the Athabasca deposit alone contains 315 billion additional potentially recoverable barrels. As oil sands investment increases and new technology is developed, some of those reserves may become available, which is good news for the U.S. as it looks to shift more and more of its oil imports from Canada and elsewhere in the Western Hemisphere.

Part of America’s Canadian oil intake is made possible by Transcanada Corp.’s Keystone Pipeline, a project that delivers crude oil from Alberta to American markets in Illinois and Oklahoma.

Currently, the Keystone Pipeline system can transport up to 590,000 barrels per day, but the proposed Keystone XL Pipeline project between Alberta and Nebraska would increase capacity. The extension, however, has raised controversy among a host of safety, environmental and land-ownership concerns, and many scientists, citizens and politicians alike are urging President Barack Obama to reject it. Obama blocked the expansion last year after Nebraska Gov. Dave Heineman (R) would not permit the pipeline to run through the state. But Heineman reviewed an environmental assessment of a revised route and approved it this January, meaning Keystone XL’s fate is now back in the hands of Obama.

Although the U.S. is still a faithful customer, Canada has been looking to diversify its exports and gain broader foreign investment, in part by approving a pair of recent takeover bids – China’s state-owned CNOOC’s acquisition of Canadian company Nexen and Malaysia’s Petronas’ purchase of Progress Energy Resources. CNOOC offered $15 billion to buy the struggling Nexen last July, and while CNOOC was already operating in the oil sands at the time, its bid was a cause for alarm by some in Canada.

With national concerns mounting that a critical sector of the Canadian economy could fall under foreign control, a warning about the takeover from the Canadian Security Intelligence Service was reported by Reuters. While the government still approved the bid, Canadian Prime Minister Stephen Harper did note in a news conference that, “when we say that Canada is open for business, we do not mean that Canada is for sale to foreign governments.” He added that similar purchases would only be approved under “exceptional circumstances” in the future.

The bid also raised concerns among some U.S. policymakers, including Senator Charles Schumer (D-NY), who urged the Committee on Foreign Investment in the United States (CFIUS) to block the deal until China eased restrictions on foreign investment.

The U.S. government held the power to veto part of CNOOC’s takeover because it included access to Nexen’s production sites, among them oilfields in the Gulf of Mexico.  But this February CFIUS, which evaluates whether transactions pose national security threats to the U.S., approved the deal, which was re-filed by CNOOC on November 27, 2012. Nexen’s Gulf assets will provide CNOOC with deepwater oilfields from which to acquire the technology to drill in the disputed South China Sea.