Observers laud Chinese buying Texas oil fields

The plan by a China-based company to buy oil fields in Texas for around $1.3 billion is a smart move and a good deal because oil prices will rebound, according to industry observers.

Xinchao Shiye, a public company based in east China's Shandong province, made the acquisition known in a disclosure to the Shanghai Stock Exchange last weekend. The oil fields are in Howard and Borden counties.

The company said it signed a letter of intent to purchase the fields from Tall City Exploration and Plymouth Petroleum, two limited liability companies registered in Nevada, through Moss Creek Resources, LLC, according to the disclosure

Xinchao Shiye, established in 1985, operates primarily in real estate and electric cable businesses, and also is in textiles, construction, tourism and importing and exporting, according to its profile on Baidu.com.

"I think this is a wise decision," said Sun Yuanhui, chairman of the board of Northern Offshore, a Houston-based subsidiary of Shandong Offshore Equipment Company, Ltd (SDOE) in Qingdao, Shandong province. "When the oil market was good, many companies wanted to invest in the oil industry, but it was difficult to get in. Now during the downturn, there are better opportunities for non-energy companies to enter the market."

As a long-time expert in the petroleum sector, Sun sees the current downturn in oil prices as just another cycle the industry has experienced many times, but he said this time it's more serious.

"Many companies, including us, are adjusting our strategy to weather the storm. Currently the oil price still fluctuates a lot, and nobody really know when the end will be," said Sun, adding that most industrial experts are expecting that the price may stabilize next year to a point where profit can be made.

Energy Magazine publisher Rick Slemaker gave a similar view.

"This is a smart move for the investor group as the oil fields have a great upside potential even though the current oil prices in the US are half of what they were just a year ago." Slemaker said "prices would rebound in a year or so and if President Barack Obama and the US Senate approve the House of Representatives bill to allow oil exports from the US. Then this purchase would be a blockbuster."

Slemaker said that in Texas a lot of operators are over leveraged and are running out of cash. They are producing as much as oil as before to keep up with debt payments, but the much lower price has forced some operators to sell out, he said, adding, "This is the buyer's market right now."

Li Shaolin, president of PetroChina International (America) Inc, cautioned that for Chinese companies, if they are well prepared, this is indeed a good time to buy.

"I understand that the company is in real estate. I hope they would or did hire experts and professionals to evaluate the reserve and develop a well-placed plan for future operation if the acquisition succeeds. If so, this is good deal as I know the oil fields in that particular area of west Texas are good."

mayzhou@chinadailyusa.com