Photo by Kevin Douglas Grant

As chairman of state-owned China National Offshore Oil Corp. (CNOOC), Fu bid for Unocal, the ninth-largest oil and gas producer in the United States.  His attempted $18.4 billion buyout was a spectacular failure, as Congress panicked about Chinese influence on U.S. industry and passed legislation to delay the sale.  

U.S.-based Chevron won the approval instead, grabbing up Unocal for $17 billion.      

Fu, speaking a news conference held at the University of Southern California’s Viterbi School of Engineering on Tuesday, said the investment climate is now radically different in an industry retooling for renewable energy production after last year’s catastrophic Deepwater Horizon oil spill.

“The U.S. is changing and China is changing,” Fu said. “The world has changed, and the world is changing faster than we expected.  We see a very good atmosphere coming up for investment.”

In fact, CNOOC has already invested $4 billion in American projects in the past year, which Fu said will eventually support 20,000 new jobs.  The bulk of the investment is in partnership with Oklahoma City-based Chesapeake Energy, funding drilling projects in Texas, Colorado and Wyoming. 

Iraj Ershaghi, a USC professor and petroleum engineering expert, confirmed that CNOOC has succeeded here by taking a more cautious approach toward foreign investment, working with partner companies and avoiding controlling stakes in operations. 

“China is investing in oil and gas opportunities worldwide, the U.S. is one of them,” Ershaghi said, also mentioning Africa and the Middle East. “In almost all cases, they have a partner.”

Fu said that China and the U.S. share a common threat in rising oil prices, even if the countries are employing different policies to deal with them.

“The oil price keeps going up, not just starting from today,” he said.  “Oil was surging from 2008 and it just returned.  For the short term, nobody can expect that oil prices will be lower.  And in the long term, there is no opportunity to get the lower price because of the demand.”

He was strongly critical of petroleum futures speculators, whom he said are using the crises in North Africa and the Middle East to drive up prices.

“It gives a good opportunity and a good story to the speculators on the market,” he said.  “This turbulence will not cut much of the supply to the market, but the price will be heavily impacted just because of the speculators.”

CNOOC is having a banner year, its stock price the highest in company history.  Fu is lauded by analysts for his role in opening China’s oil and gas industry to foreign investment, all of which must be approved by the government.

The failed Unocal acquisition was a learning experience for CNOOC, created in 1982 to focus on offshore oil fields. The company, unlike other Chinese energy giants at the time, reached out immediately to foreign companies in need of technology and expertise to get its operations up and running.

Fu, who holds a master’s degree in petroleum engineering from USC, said every country must design technology for its own particular geology, however:  “A lot you have to do on your own,” he said.  “If a [supply and service] company like Halliburton cannot provide the technology, you have to provide your own.” 

Last year’s Deepwater Horizon disaster in the Gulf of Mexico, the worst marine oil spill in history, showed the hazards of the industry, where complex partnerships are standard.  BP, the owner of the well that began gushing uncontrollably after the Deepwater rig exploded last April, was leasing the rig from Transocean and had contracted Halliburton to work on it.

“[Deepwater] is making the whole industry alert on how we can prevent this from happening again,” Fu said.  Five million barrels of crude oil gushed from the Gulf floor over 87 days.

Ershaghi, who is often quoted in the aftermath of the three-month spill, said he blames human error, not drilling technology.

“Essentially BP is one of the leading companies in terms of ‘collaboration rooms’, which means when you’re doing an operation you have another body watching you,” Ershaghi said.  “For this project, they were not using that.”

Fu agreed: “People’s behavior is more important than technology,” he said. “We see a lot of these disasters are not caused by technology but by human behavior.”

China, now the world’s largest consumer of energy, depends on coal for 70 percent of its needs but executives like Fu are working to increase the role of oil, gas, and renewable energy.  He said renewable energy is important to CNOOC but will not become a significant percentage of its operation for 20 to 30 years.

“This is totally different from last round of industrialization, which lasted for 200 years,” Fu said, referring to a period in the 18th and 19th centuries when many Western countries moved from manual labor to coal-powered mechanization to petroleum’s dominance.  “This round nobody believes it will take 200 - China may only take 30 years.”