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China & the Americas: another thing to watch

It takes vigilence for a free people to keep an eye on all the undercurrents in world affairs that matter.  A Quillnews plume to Bill Rice of Dawn's Early Light for his timely and provocative post recently about China's recent moves in Panama (!).  DEL is definitely on to something here.  Bill's post appeared before a similar series of stories in the Wash Times about China in Latin America.  These overtures by China are utterly in line with their long term geopolitical interests and something that the US will have to manage in the years ahead. The last time China moved into the traditional US orbit occured during the Cnooc attempt to take over Unocal, and the US reaction showed that the US political community had not adequately thought through the world in which the US and China will have to cooperate. (QN, QN2)   At the moment, I don’t see China’s development of relations in Lat Am as hostile to the US – at all. No more so that the long standing US relations with, say, South Korea, Taiwan, Japan and a host of other East Asian nations, the emerging countries of Central Asia - like Mongolia or Kazakstan, or the new long term committments between the US and its allies in South Asia, most particulary India!  Having the China also establish links with the resource rich countries in the Americas makes perfect sense for them, too. Rather than fear these overtures, the US should welcome the opportunity to get along with China here and to build the trusting positive relations in the Americas that can be leveraged to improve relations in East and South Asia – where we already have vital interests and where our cooperation with China is critical to peace and prosperity.   (SD1, SD2, SD3, SD4)

Having said that, the fact that China will be developing strategic relations in Lat Am will be provocative – and be used by Chavez, Castro and other Lat Am hard cases to leverage their own hostility toward the US and its interests. (Summit, SD, Venezuela) Said another way: China will have to be very careful not to be used by the anti-US forces in Lat Am in their own political games.  This is going to be a big challenge to China’s diplomats because you can guarantee that Chavez and his ilk will try to use China against the US – whether China likes it or not.  The US is on track with China – trade development, lack of military hostility, cooperation on North Korea, emphasis on political and legal transparency and reform.  But China is the ball game.  This is 20% of humanity, and they have a 5,000 year old civilization and they are on the move in the wider world.  The strategy for free people:

• Plan A: be friends and get along
• Plan B: be prepared to win a fight with them. 

The challenge for the US will be to ready for both the whole time and have no illusions about the nature of humanity.

IRA. GAM. Is this a trend?

Let’s just take the deal on Aceh, Indonesia.  (AP, BBC, CSM)  When I was an oil company soldier, dealing with this heart breaking conflict was daily duty. (DJ) That this place and these people (local Muslim rebels with a beef against the far away feds, world class petroleum resources, next to the most important shipping lane in the world, in danger of becoming base for worldwide terrorists…et al) are no longer in the cross hairs of history makes today a very good day. (QN, QN2, QN3) Quillnews observation:  if world oil markets are looking for an excuse to take some political risk off the table and drop that crude oil price down 10% this is as good as oil supply news gets and plenty of reason to have that price start back to earth… (BBC)

Unocal/Cnooc Graffiti (Epilogue): trust first...

The news that Cnooc has tossed in the towel on Unocal (WT/AP) reminded me of something an office admin in Singapore once told me while I was doing prep work with our company’s oil business development team about to fly to Hanoi in ’94 to ink an exploration deal.  The office admin, a seasoned professional in her middle 50s of Chinese ancestry, was helping me with all manner of logistical details – visas, photos, preparing language for statements, options, position papers and making changes and copies all along.  At one point, she grew impatient with my lack of patience for some of the ceremonial aspects of our visit, and my confidence that the deal was good as done.  “You Americans,” she said. “You think of nothing but the business.  Just the deal.  Business first, relationship with people second.  No. In Asia it is just the opposite.  Relationship first.  Trust first.  After you have trust from the relationship, then comes business.”  It was wise council, of course.  I cooled my jets and let the lesson sink in as the rituals of relationship building developed.  I thought of her recently and that her counsel could have been a big help to Cnooc and its largest shareholder, the government of China, as it went about the public rituals of competing to acquire the assets of one of California’s iconic companies – and doing it late, unasked, against a competitor also based in California and while the US and China are, shall we say, working out some issues: Taiwan, North Korea, arms build-ups. No matter what the details of the business deal, what was required for the Cnooc bid to succeed in the US was trust.

Credit Cnooc for finally reading the political landscape properly.  They were out maneuvered by Chevron, which exploited the political environment -- its home field advantage -- skillfully and succeeded with a superior financial deal to boot.  Give Cnooc’s American financial and political advisors high marks for telling Cnooc it was time to “fold ‘em.”  For Cnooc to raise the bid much higher (to levels that would no doubt be more than the Unocal assets are worth), or get the higher pay grades from China’s government involved, would have played into Chevron’s hands.  Such government muscle or spending overkill would prove Chevron had been competing with the Chinese government – and seriously eroded Cnooc’s efforts to demonstrate to others in the oil industry worldwide that Cnooc is a business first, that economic values matter to Cnooc executives and that geo-political issues, while they may be part of the mix, do not dominate a business deal.  Building that sentiment into a reality will pay big dividends down the road.  However, Cnooc’s sense of entitlement will need some work.  Cnooc’s statement issued from Hong Kong Tuesday, missed the mark: 

CNOOC has given active consideration to further improving the terms of its offer, and would have done so but for the political environment in the U.S. The unprecedented political opposition that followed the announcement of our proposed transaction, attempting to replace or amend the CFIUS process that has been successfully in operation for almost two decades, was regrettable and unjustified. This is especially the case in light of CNOOC's purely commercial objectives and the extensive commitments that CNOOC was prepared to make to address any legitimate concerns U.S. officials may have had regarding our acquisition. This political environment has made it very difficult for us to accurately assess our chance of success, creating a level of uncertainty that presents an unacceptable risk to our ability to secure this transaction.

Quillnews observation:  Come on, guys.  Stop whining.  “Unprecedented political opposition… unjustified.”  “purely commercial objectives…”  Give me a break.  Nothing in the oil industry is purely commercial; all investments are part of a bigger energy supply and market security puzzle. (Editor's aside: for background QN, WSJ, NYT, WS, MSNBC)  And, as any one involved in the oil business can tell you, the US is one of the highest political risk environments for oil industry investments in the world!  Grow up. Try getting permits to drill a well offshore California, or to build a new gasoline refinery.  As they say in Queens: "Unjustified... Unjustified! I got your unjustified right here...!"  Now you know what it fells like to want to drill in Alaskan wilderness and told no – the US government would prefer to rely on Saudi Arabia, home to jihad central!  Like that office admin in Singapore said: “Relationship first.  Trust first.  After you have trust from the relationship, then comes business.”

Howard & Singh: why pals are important

With all the snarky static in Media-ville about Rove, whether Iraq is to blame for the London bombings, and the retro wardrobe of a judge’s family… oh well whatever.  Take no serious notice of the pontificating clowns playing roles as “reporters” during their high paid gigs in the MSM.  As we used to say about yesterday’s editions at my beloved tabloid the Daily News, its all just fish wrap. In fact, in real life the hard tilling of the soil of economic engagement and peace yielded a bountiful crop last week. Quillnews took some time to have a look off stage, where government and global commerce work on Plan A – the details of engaging the world in a peaceful unified economy to benefit all.   But as this goes on, so to does the preparation on Plan B – the requirements to defend Plan A with lethal force.   And in these efforts, the US, UK and Australia have been yoked in harness for years, and in earnest since Sept 11, 2001.  Last week, India signed up as a partner, and benefits began to show in Indonesia and China!  Moreover, while Americans are used to the UK and Tony Blair, last week Australian Prime Minister John Howard showed the world by his deeds and words at center stage a clarity of vision that shamed doubters and which all are coming to realize is the hallmark of Australia, a true ally. Let’s survey:

1) Australia:  Australia’s Prime Minister John Howard was center stage in both the US and UK – again – to show this week what a friend says, does and looks like.   On Monday, Howard appeared with SecDef Rumsfeld at a DoD briefing, and Tuesday with President Bush at the White House.  Lots to talk about: Islamic terror, regional security, China trade. A big agenda for both. The US and Australia have been building their alliance steadily, and put the shoulder to it after Sept 11. Here’s State Department summaries: (SD, SD2)

Notable in the alliance is the cementing of military operations, like the recent Talisman Saber Exercise which combined a U.S.-Australia command post and field training exercise, to work out operational kinks and build confidence. (DoD Pix, Pix2) Then there was Howard’s announcement in the wake of the death of too many Seals and Special Forces in the Afgan/Pakistan border region on the UBL hunt.  In the face of this heart-breaking loss, Howard announced more members of Australia’s Special Forces unit would be dispatched to the same region to join the hunt. 

Howard has steadfast constituents too; such as Douglas Wood, 63, who though perhaps a rogue, knows who his friends are. Wood's kidnapping ended when he was rescued by an alert Iraqi patrol acting on a tip.  Wood promptly said his rescue – preventing the execution his friends had already suffered – is evidence of the successful training by Australian and American troops.  (DoD, 2, ABC, 2)  "I'm proof positive that the policy of the American and Australian governments is the right one. I think the quicker we hire, recruit, train police and the Iraq Army up to speed, then, when they're fully engaged and ready, they can start going around door to door and start developing confidence in the Iraq population," he said.

Howard left the US for London, returning to the UK two weeks after an earlier visit for the G-8 was marked by the London 7/7 bombing. Again, Blair had a partner-in-arms at his side when he spoke Thursday defiantly and confidently in the wake of a second round of terror bombs.  Howard stood with Blair before the press in aftermath of bombing, offering words of comfort and support. (BBC, 2, ABC, 2) Howard took the time to knock down the Lesson 18 dis-info psy-ops ammo (which also is staple throw away line repeated endlessly on the BBC, Reuters et al) that Iraq is to “blame” for the London bombings. Howard’s devastatingly articulate response will live in history. (TA, Chrenkoff, Tim Blair, Instipundit nail it. See video here) As Howard has said before: "If you imagine you can buy immunity from fanatics by curling yourself in a ball and apologizing to the world for who you are, not only is that morally bankrupt, it's also ineffective."

Howard's visit in the US and UK wasn’t all security. In public, Howard also showed the kind of leadership a stand-up neighbor can offer others from his region from time to time. Note Howard’s emphasis during appearance with Bush on the value Australia places on importance of the trade relationship with China, and also on the importance of Indonesia’s emergence as a cornerstone to stability not only in the region’s all important shipping lanes for global markets, but also demonstrating the value of democratic governance in the world’s largest Muslim country.  It was with Australia’s diplomatic help that Indonesia was positioned to ink a peace deal with Acehnese rebels, ending a 30-year rebellion that threatened regional gas supplies and shipping. GAM, the rebel’s political arm, reportedly will suspend violence in exchange for permission to let candidates run for office. (TW, TA) The rebels, though fundamentalist Muslims financed by the marijuana trade, were not of the Arab-centric Al-Qaeda variety. However the potential was the rebels could link with UBL’s crew and put a stranglehold on world shipping. Aceh, with its vast gas resources, also represented a separatist threat to Indo feds in Jakarta with a fearful obsession that succession might spread among the nation’s 200 ethnic groups spread over 6,000 islands.  The tsunami last December was devastating to Aceh and to the rebels.  Some 170,000 Acehnese were killed, in a province of four million inhabitants in a country of more than 250 million.    (Editor’s aside:  As a former oil company soldier who worked in Aceh, with a truce cutting the security risk premium, I also hope that financing can now be unlocked to transport the gas from the massive Natuna reserve to the LNG plants in Aceh, giving life to the massive gas processing infrastructure working on declining reserves in that devastated region, and new energy supplies to East Asia markets.)  (QN, QN2, QN3, QN4)

2. India:  India’s Prime Minister Manmohan Singh also was in DC for one of those mega-state visits that come when two nation’s ink a deal of such importance that only the longest and reddest carpet is suitable. (WH, WH) Despite Cold War differences, today the political values the US and India share are monumental: like the US, India protects, celebrates and nurtures democracy, a religious tolerance, ethnic diversity, and free markets.  In fact, the US and India are fast becoming family.  One of Singh’s most important appearances in the US was before an audience of Indian-Americans, who number 1.5 million, and whose achievements in academic, sciences, business and technology are legend.  It’s good politics at home for Singh too.  America remains overwhelmingly popular among the Indian people. (Chrenkoff, PL, AT)  Could it be because India, a democracy with its own history of religious strife, more completely understands what the US is doing in the war against violent Islamists?  Al-Qaeda has no fiends among India’s Muslims, who are 20% of India’s population but who know the value of law and order enforced by democratic processes that insist on protecting the rights of all.  Both Hindu and Muslim in India understand that from time to time law and order must be enforced with lethal force – to prevent the spread of violence.      

For his visit last week, Singh met with President Bush Monday, attended a state dinner that evening, and spoke to a joint session of Congress Tuesday. (WSJ, CNN)  Since Sept 11, the Capital Hill podium has been reserved for the very few and very special: UK, Spain (US war on terror pals), Iraq, Afghanistan (peoples liberated by American arms), Ukraine (liberated with American moral support) and now India, on the occasion of the signing of the global partnership agreement. (SD, SD2)    (Editor’s note:  Howard’s appearance before Congress was scheduled for the morning of Sept 11, 2001 – and cancelled.  The US and Australia, however, remain close enough cultural and political cousins that such up-market formality can wait.  No worries.)

3. China:  With visits to the US by India and Australia as background, the decision Thursday by China to devalue its yuan and let the currency float in value in world markets is huge!  (BBC, WSJ, ISAP, LAT) It shows that China will engage the world on the world’s terms – letting market forces dictate policy – and that the leaders of 20% of humanity, despite the region’s fears, want to do better.  A few Chicom bulls may threaten to nuke US cities over Taiwan from time to time.  Work on Plan B continues. (WP) But when the sun came up last Thursday, China had put real money – big money – behind Plan A and peace. In this case, China’s actions not only gave the world’s economy a 2% discount it agreed to let the free markets of the world dictate terms from now on.  Wow. (WSJ) 

This historic decision did not occur in a vacuum.  The US and its allies – like Australia and India – have been cementing strategic alliances for years.  The US has encouraged China to redress its currency imbalance, while at the same time encouraging it to take a more active leadership role in the region – to defuse North Korea’s nuke program for example. Rice was in Beijing earlier this month, and the six-party talks are set to resume. (LAT, LAT2, LAT3) The US has been encouraging China to invest in the world, and let the world invest in China.  The Cnooc’s uninvited, late and aggressive bid to grab Unocal from Chevron wasn’t quite what everybody had in mind, and the Congress last week showed China what can happen if their business tactics follow PLA rules.  By the end of the week, it looked like Unocal’s board wanted to stick with a sweetened deal from Chevron, rather than link up with a risky outfit from China whose owners still had a lot to learn about non-threatening business practices. Stay tuned.  Still, Cnooc and Chevron will be partners down the line.  Chevron dialed down the rhetoric last week; there is no question, Cnooc has the chops to play in the global oil markets.  This LAT graphic about China’s energy impact on world markets is excellent.

For a people sensitive to face, China’s diplomats has to tell their leaders at home that on the Tuesday India's Singh was speaking to a Joint Session of Congress about their new global partnership, the DoD was delivering to congressional offices its annual report on The Military Power of China.  This is a no-nonsense and chilling litany of steps being taken by the rulers of a fifth of humanity who are assembling the means to become a strategic adversary – maybe. No secrets here. A US commission is studying the relationship. (USCC, 2, 3) Whatever China’s statements about its intentions, the facts contained in this report must be responded to by the US and its allies. To bend a baseball metaphor around the threat posed by China’s military: if they build it, we will come.  The US, UK, Australia and their allies showed last week they know the most important element of Plan B – the military confrontation option – is the vigorous pursuit of Plan A – the engagement option.  Lots of excellent work was done on Plan A last week.  Plan B, as well: London cops shot dead a jihadist suspect in a tube station Friday because he was looking hinky. Time for talk is over. (VDH, 2)  Like I said: huge.  Stay tuned...

Unocal/Cnooc Graffiti (Part 6): China, the oil business is hard ball and the game is long.

When thinking about the players involved in the game in DC, keep in mind Cnooc, Chevron and Unocal have big time free-lance talent working their case for hire.  There have been a few puff pieces that caught Quillnews eye.  (NYT, WP, SD)  Some of the boulevardiers of Gucci gulch, K St. and Georgetown saloons, and the posh luncheon clubs have surfaced.  A few of these players include guys usually found in the wings, including two Bush Rangers, heavy duty GOP fund raisers who are in what is often called, lobbying, though it often looks like fund raising to pay for political campaigns and which supports the massive campaign/lobbying/legal industry that so lucratively employs those in what is often called the private sector in the company town of DC. (Don't let the above link's populist rhetoric fool you - both sides - R & D - play this game).  The guys at issue here include Wayne L. Berman, a principal of the Federalist Group, who Chevron signed up to help on the Cnooc fight. Another Bush Ranger is James Langdon, who oddly enough also serves as chairman of the White House Foreign Intelligence Advisory Board, and felt secure enough in his position of influence to sign up to help Cnooc. Hmmm.  (No, I don't think he is working for anybody but himself here. Kinda brazen, actually, even by contemporary DC standards.  Still, given the optics he's recused himself from FIAB matters on this subject, and also guaranteed he will never be listened to again.)  Another in the Cnooc camp is a Bush campaign PR whiz, Mark McKinnon. There are a bunch of other reliable DC hands working on this job for all sides.  Just keep these political players in mind when you see the "news" stories about what this oil business deal means.

Quillnews word of advise to the hired talent:  The last thing an oil industry “client” (in this case, Unocal, Cnooc, Chevron) wants to see are newspaper stories about the high-priced politically wired-up big shots they have felt it prudent to hire to help tug the political oars in the DC shark tank during a regulatory or legislative battle. A friendly word of advice to these VIP counsels: zip it.  The more an oil company guy sees the name of a DC hand he was forced to hire in print the more they don’t want to see that DC guy, ever. The industry already sees much of what goes on in DC as a high-tone extortion racket as it is. Any DC talent who take the opportunity to add flash-and-dash publicity about their importance to boost standing or perhaps even future business is on a fool's mission.  What is required by the leaders of Unocal, Chevron and Cnooc is a consistent and fair-minded reading on the logistics of the decision-making process, on the thinking and political requirments of government decision makers, and a belief that merit, hard work and luck will make their oil patch deal happen.  If the costs are too high or political conditions not right, the company guys need to know that so they can know when to walk. No biggie. It’s just one deal. The world is big and those among its 190+ governments that keep their word, are fair, have rational decision making and possess open and transparent systems win the confidence of investors. Those countries get the investments and the goods.  If investors can't get a fair read on what will work in one country or another, they won't bother trying.  The education Cnooc (and its government owners) are getting now will be useful down the road.  China's learning what will fly in the US. And what won't.  (NYT)

To keep some perspective, its hard to beat the points made by Robin West, chairman of PFC Energy, one of DC’s most reliable petroleum industry consulting outfits, in an excellent summary article in the WSJ.  West urges all to keep in mind that Cnooc’s bid to buy Unocal is an oil acquisition play that, though complex and emotional, should not divert everyone from understanding that China is here to stay and it is in everybody’s interest that the US and China work together.  Money quote:

The Cnooc bid should be seen for what it is -- an aggressive, contested bid filed late. Now the Chinese are demanding exceptions to the rules and sliding past uncomfortable facts. It is not a commercial deal, but rather a government deal financed with cheap government money. The Chinese cannot demand fairness on the one hand, but not play fair with the other. The Unocal deal is also an unfortunate distraction to the vital question of Chinese energy security. The U.S. should cooperate with China, not compete with it. There are ways this can be achieved which can increase not only the mutual energy supply but mutual trust as well. Washington should take this approach, and not be stampeded by Cnooc into an unfair deal.

To Quillnews' readers, keep in mind this is just one oil deal, and Chevron and Cnooc are going to be around after the corporate entity called Unocal is gone.  So will (God willing) the US and China.  (Both will continue to work on their respective Plans A and Plans B).  At the end of the day, what Unocal has in the ground in various parts of the world is largely the “expectation” of petroleum supplies and earnings in the future. There are no guarantees. It’s all a gamble. 

Quillnews advise to China:  You guys know how to calculate your joss and lay down a bet. So far, as your wisest leaders know, the evidence is that those who let free markets function according to transparent systems of law and order (the US and the WTO trading partners on which you have already bet a handsome poke) win more than they lose.  One must in the free market is that the game be played fair on a level playing field, and that every player learn what every Little Leaguer sooner or later knows: “you can’t win ‘em all.”

Part 1

Unocal/Cnooc Graffiti (Part 5): Good news on Plan A - China and the free market

Unocal shareholders and the US government have to ask: Can China be trusted?  For guidance, look at what some hickory nut hard capitalists based in Saudi Arabia and the US did recently.  They put down a bet China’s worth a risk or two.  Study the recent announcement (NYT) by Saudi Aramco, ExxonMobil and Chinese Sinopec of their investment in a joint-venture petrochemical complex in the metropolitan area in Quangang District, Quanzhou, Fujian Province, where 7 million people reside. Look at the guest list for the signing ceremony. The partners say they expect the project will form the basis of a world-class integrated refining and petrochemicals base, which happens also to be located directly across the straits from Taiwan.  China is eager to get development underway there as a premium location for investment and growth, with a petrochemical industry complex a key component. The petroleum feed stock will come from Saudi Arabia and be shipped to China on boats that have to be designed for the job and built.  The petro-chem cooker will be designed and run by ExxonMobil tech-heads with partners from the impressive array of engineers at Sinopec, the Chinese state oil company, one of the largest employers in the world. This is a huge deal on a business basis, sewing up the industrial and economic infrastructure of China with the resources of Saudi Arabia and with American economic and industrial interests smack in the middle of it. (China, USEmbassy)  Set aside all the geo-strategic scare talk about China vs. the World, for a moment.  That’s all true as far as it goes and preparing for that world is vital (known here as Plan B).  But as part of Plan B, it is essential to see if you can make Plan A work. And under the preferred gold-plated happy-days envisioned by Plan A, what must happen is for China to have a vital stake in the world – and visa versa.  China needs to put some skin in the game, and free market capitalists need to get into China’s innards, too.  Both China and the  world of the WTO know it.  When that happens, a lot of China’s behavior problems, and the free world’s nervousness will be solved.  That’s Plan A, anyway.  Now back to Plan B...

Part 6

Unocal/Cnooc Graffiti (Part 4): Numbers goes up and down enough in the oil business already

When Unocal shareholders decide on whether to take cash and shares in Cnooc stock for their Unocal shares, there will be an issue of determining fair value in free markets and in transparent dealing according to reliable laws.  This will all be looked at hard by Unocal directors and legal counsel.  But does anybody trust China’s calculations on any subject; I mean really.  What do China’s numbers mean?  Can Unocal shareholders actually depend on the Chinese government to tell the truth about the numbers that are the foundation of the Cnooc’s offer?  Hmmm. (IEA)  The world got a look see that those numbers might be in need adjustment from time to time. Take China’s energy demand. For the last few years, the demand has been up up up and nothing was going to stop it… until last week!  Opps. According to new IEA figures from Paris (NYT), it seems that after energy demand increases of 11% in 2003 and 15% in 2004, China’s current energy demand figures actually show a 1% decline!  Huh?  Looks like all that talk about Chinese energy demand pulling up oil prices and causing the world oil markets to go all jittery… and placing a premium on the outcome of the Unocal/Cnooc deal… well that script is going to need work during rewrite. 

Quillnews wonders:  Could China have been fudging the earlier demand numbers, or has China suddenly gone into recession, or perhaps is it a fact that nobody including China’s government knows what is happening or what the true demand figures are?  Inside China’s murky world of autonomous power and unchallengeable authority, the reality is that nobody can ever be trusted to tell the truth to power. If there is only one boss and he only allows one argument, the odds are that the answer to every question will be wrong.

Part 5

Unocal/Cnooc Graffiti (Part 3): Thunder Horse

As the Unocal shareholders and DC try to parse through the factors involved in having China own Unocal assets, a few in industry no doubt looked at the $1 billion Thunder Horse project operated by BP that was, among other things, listing at a 20% angle. In oil circles, Thunder Horse is huge deal not only as a project in itself, but because it represents the hopes for the industry to exploit what have been called “deep water” assets in the Gulf of Mexico and which are part of the essential energy supply for all American industry and a continuing oil price customers can afford.  If that deep water is no longer an industry development target, that matters. But this awesome facility set to produce up to 10% of the Gulf of Mexico petroleum output was just nearly sunk by a wind storm! Holy mackerel; talk about news! Stop the presses!  (WSJ, MW, DJMW)

BP has 75% and ExxonMobil 25% of this platform which will probably produce up to 250,000 barrels of oil and 200,000 thousand cubic feet of natural gas a day from up to 25 wells sunk from its work decks. Discovered in 1999, the Thunder Horse reservoir is located in Upper Miocene geological zones in turbidite sandstones in water more than a mile deep, and 150 miles from shore in an area geo-heads call Mississippi Canyon Block 778. The new facility, designed in Sweden and built in South Korea and Louisiana, weighs 50,000 tons, is the size of three football fields and has living and work accomplications lush enough for a crew of more than 200 working 2 weeks on 2 weeks off.  To have this marvel looking like this (or this) is a very big deal for the following reasons:

1. Even whopper storms like Dennis are routine and offshore production facilities are designed to handle wind and waves.  If they can’t, they aren’t built.  Something went wrong. 
2. Investors around the world who manage retirement funds, government treasuries, banks, insurance companies and hedge funds have all planned their earnings projections on this facility working and have either invested in it in one form or another or expect to live on its income.  Industrial equipment like Thunder Horse is how the world makes its income.  If this equipment goes wrong, the world’s grown-ups what to know what else can go wrong and where? 
3. The BP operators will be answering a lot of phone calls from their partners at ExxonMobil and elsewhere about what happened, why and what will be done to make sure it doesn’t happen again. The answers will be important because what is said will determine the kind of partners BP can find to invest and operate with elsewhere in the world and how much of a risk premium will be required with working with guys who had this happen.  A lot depends on the answers. 
   
4. The good news is that the best people in the world on complex technical and management issues of this kind are working overtime to diagnose and fix this problem, to make sure the facility doesn’t go to Davey Jones locker and that it get to working order pronto.  Nobody working in the Gulf of Mexico yards needs to be told this is serious.  BP geo-heads and tool-pushers and their industry counterparts in New Orleans and Morgan City are among the most seasoned in the world, among the pioneers at operating in the Deep Water of the Gulf, and the world is lucky they are on the job.   

Quillnews question for Unocal shareholders and the US oil cops at DOI's MMS :  Cnooc wants to buy the acreage and reserves held by Unocal in the Gulf of Mexico. (Here, here)  Chevron has a record of performance in the Gulf, is one of the industry’s premier operators and a known voice at the end of the phone line. Can the US trust Cnooc to operate in the Gulf of Mexico the way it trusts BP to fix the unexpected problems that happened at Thunder Horse? 

Part 4

Unocal/Cnooc Graffiti (Part 2): China guys in DC get more “help” from HQ

As the Cnooc and Chevron political and financial war rooms in DC and LA rework the numbers again and see if they can’t sweeten their offers for Unocal’s assets, the outside fight continues. The Cnooc op-ed in the WSJ was a very good thing, politically smart and laid out the free market argument beautifully for Cnooc.  That piece was first class.  So was the profile of Cnooc's boss in the NYT.  Also, good profile building by the Cnooc team. But despite these quality dance steps in by Cnooc in DC, it’s hard to repair the jack boot stomping of the China’s Foreign Ministry which earlier had demanded Congress butt out of their business.  What could be worse?  Well, a hard-case Chicom general with a testosterone imbalance told journalists Thursday China will nuke the US if they try to interfere on Taiwan!  Check out the rhetoric in the FT from this guy, who Cnooc has no doubt told their planners in Beijing is a knuckle-dragging, no-neck moron :   

"If the Americans draw their missiles and position-guided ammunition on to the target zone on China's territory, I think we will have to respond with nuclear weapons,” said General Zhu Chenghu. “If the Americans are determined to interfere [then] we will be determined to respond,” said Gen Zhu, who is also a professor at China's National Defence University.  Zhu was speaking at a function for foreign journalists organised, in part, by the Chinese government. He added that China's definition of its territory included warships and aircraft. “We . . . will prepare ourselves for the destruction of all of the cities east of Xian. Of course the Americans will have to be prepared that hundreds . . . of cities will be destroyed by the Chinese." 

The FT reports Zhu is a well-known over the top “vital bodily juices” hawk of the Dr. Strangelove variety (think Sterling Hayden's Gen. Jack D. Ripper). But Zhu’s threat to use nukes over Taiwan is the most specific by a senior Chinese official in nearly a decade. No movie making there.  And his comments come as the Pentagon is getting set to brief Congress next week on its annual look-see on Chinese military, looking at Plan B.  Rumsfeld signaled to all a few weeks ago he thinks that China’s military building can not be explained unless you assume China is trying to dominate their region in ways that de-stabilize the current status quo. Zhu probably had missed all the consultants' seminars about free market business customs, how important trust betwen partners is essential. Maybe he was miffed he lost out when the Central Military Planning Committee rejected military solutions and adopted a capital markets approach to the energy supply problems.  Either way Zhu probably told Unocal shareholders what they need to know in deciding who to sell out to: 1) Chevron, which is headquarters in San Francisco as the former Standard Oil Company of California, or 2) to the small oil outfit run by Chicoms who haven't learned to play with others quite yet.

Part 3

Unocal/Cnooc Graffiti (Part 1): The DC Welcome Wagon

The House armed services committee rolled out the DC version of the welcome wagon Wednesday for China. Former CIA Director Woolsey called the Chinese “bullies” trying to “push people around with their elbows” in the school yard.  Anti-communist gadfly Frank Gaffney said the US requires a “far more rigorous, transparent and national security-minded process for evaluating Chinese investments like Cnooc's proposed purchase of Unocal” than current law allows. Current laws aren't enough. Ouch. Chairman Duncan Hunter, a no-nonsense House big shot, said maybe new laws are required and the House is going to be looking very closely at the evaluation process to be undertaken by the Treasure Department’s Committee on Foreign Investment in the United States, headed by Secretary Snow, who no doubt will be hamstrung by facts, the law and a general sense of what is right and wrong when making a government go/no-go decision. As for the Chevron and Cnooc bids for Unocal share?  It’s just getting started. Unocal shareholders can only be happy that their assets are growing in value every day as these two oil patch heavy weights slug it out in just the way the game is played – hard ball and for keeps. The winner gets oil in the ground, the loser solace that the other guy probably overpaid anyway. Some guys who won oil patch fights over who gets to buy another company, bet wrong. Stay tuned.  (DJMW, NYT, LAT, NYer, WSJ, MSN)

Part 2