Oil chief knows the drill for M&As

Sinopec chairman leads way for Chinese energy companies in overseas markets

Shortly after Fu Chengyu became chairman of China Petroleum and Chemical Corp, or Sinopec, the world's second-largest oil company, the company assigned him an interpreter for a meeting with foreign guests - only to find that their 61-year-old head could speak English fluently.

"After that, we all started to learn English," confessed a Sinopec executive.

With China's energy companies becoming increasingly influential worldwide, no one represents their driving force better than Fu, who has overseen many of the industry's high-profile mergers and acquisitions, and is as familiar with Western business practices as with Chinese politics.

After Fu Chengyu became chairman of China Petroleum and Chemical Corp, the company completed 10 overseas deals worth a total of $13 billion. [Photo/China Daily]

His transfer from China National Offshore Oil Corp to Sinopec last year, however, was a major change for him. As Asia's largest oil company, with nearly 2 million employees, Sinopec is much bigger than CNOOC, although it is not as internationalized or market-orientated.

But since he took over, Sinopec has completed 10 overseas deals worth a total of $13 billion.

"Fu is a transformational figure in China's oil industry and emerging markets as a whole," says Ivan Sandrea, president of the Energy Intelligence Group, research analysts. "By effectively harnessing China's strong technical skills, he has been a catalyst in this globalization of his country's petroleum business."

Among the heads of Chinese companies, Fu had already distinguished himself by his ability to manage overseas M&As. In 2005, he led CNOOC, the smallest of the three State-owned oil companies, in a bid to purchase mid-size American oil company Unocal Corporation for $18.5 billion in cash. It would have been the biggest foreign acquisition by a Chinese company.

He was questioned at the time about the deal at home and in the United States. It was a colossal amount by Chinese standards, costing as much as the Three Gorges Dam project, the most important infrastructure project in China at the time.

In the US, it was seen as politically threatening, whereas in China, people wondered whether his abilities matched his ambitions, asking questions such as "is the snake is going to eat an elephant?".

But for Fu, the risks were carefully calculated. Indeed, "it is no longer a risk when you realize it", he says, using another Chinese idiom, when speaking at an oil industry event in London earlier this month where he collected a leadership award.

Fu says he was sure the Unocal transaction was going to prove profitable. He believed the US oil company's share price was undervalued. It had gas reserves of 4 billion barrels, with only 1.7 billion barrels registered. Share prices would rise as soon as it made the rest of the reserve public.

He was also aware of Chevron's position as CNOOC's rival in the bid. Chevron had extra gas that it could not sell, and its share price would only decline if it sought to buy more gas assets from Unocal. But CNOOC could sell the gas in China where there was strong demand.

"It was a simple equation," he says. "I dared to offer the high price because I believed it could go up even further."

The deal was eventually blocked by the US government. However, it turned out to be the start of his overseas expansion plans, not the end.