In Historic First China Begins Oil Extraction In Afghanistan

Tyler Durden's picture

In a surprising (if not quite shocking) move, late on Friday Canada blocked Petroliam Nasional Bhd.’s C$5.2 billion takeover of Progress Energy Resources Corp. saying the bid by the Malaysian state-owned company "wasn’t in Canada’s national interests." As BusinessWeek explains, "in what investors say is a test case for the $15.1 billion bid by CNOOC Ltd. of China for Calgary-based Nexen Inc., the Canadian government said it “was not satisfied that the proposed investment is likely to be of net benefit to Canada,” according to an Oct. 19 statement from Industry Minister Christian Paradis." While it is unclear precisely what would be of "net benefit to Canada" what is certain is that the Progress Energy move will crush investor spirits who in recent months have expected a flurry of foreign bids coming for local energy names, only to be left at the altar courtesy of government intervention.

And while the outlook for foreign driven M&A in Canada has just been Ice-9'ed to a degree not seen since the BHP Billiton government-denied acquisition of Potash Corp (watch the arbs scurry out of Nexen at first trading opportunity), China is wasting no time, and is rapidly reorineting itself away from increasingly energy-protectionist governments and to "greenfield" national interest expansion opportunities. Such as Afghanistan. As Reuters reports, in a historic development, and in a key staking of regional energy claims, a Chinese oil firm, China National Petroleum Corp, has just started oil production in the country which still has thousands of US troops on the ground. Expect this issue also to suddenly be of paramount importance in next week's final presidential debate.

From Reuters:

Afghanistan signed a 25-year contract with National Petroleum Corp (CNPC) last December covering drilling and a planned refinery in the northern provinces of Faryab and Sar-e-Pul. It is the first major oil production in the country.


"The company will extract 1,950 barrels per day, which will crucially help Afghanistan towards self-sustainability and economic independence," mining minister Wahidullah Shahrani told Reuters on Sunday as huge machines started drilling next to mud houses in remote Sar-e-Pul.


The venture with CNPC, which has invested hundreds of millions of dollars, was expected to produce billions of dollars over the next two decades - CNPC will pay a 15 percent royalty on oil, 20 percent corporate tax and give 50-70 percent of its profit from the project to the government.


From January 1, CNPC will extract 1.5 million barrels of oil annually, Shahrani said. Up to 87 million barrels of crude are estimated to be in Amu Darya.


Its inauguration on Sunday should lend confidence to nervous Chinese investors who have halted work on the $3 billion Aynak copper mine project in eastern Logar province, where insurgents trying to wreck the project have stepped up attacks. Afghan officials have been trying to convince the investors to restart.

Luckily, US troops are still in Afghanistan to make sure China can extract Afghanistan resources at terms beneficial to China and Afghanistan... If not the US.

As the end-2014 deadline looms for most foreign troops to leave, billions of dollars in aid is expected to dry up, leading Afghanistan to look for ways to become financially independent.


The Amu Darya basin should be able to supply Afghanistan with all its domestic oil needs eventually, said Weis Sherdel, director of the three Amu Darya oil blocks for the mining ministry.

Up next for the country which is soon set to surpass the US as the largest importer of crude: more regional expansion and capture of the global markets:

CNPC's Amu Darya crude will be sent to Turkmenistan where it will be refined and then sold to Afghan clients or abroad, Sherdel said. CNPC should complete work on an Afghan refinery in 2-3 years, officials said.

And since China will indirectly be seen as a provider of jobs, guess where the local population's allegiances will increasingly lie:

Shahrani said the development of the Amu Darya basin had provided Afghans with 2,100 jobs in the Sar-e-Pul province of 500,000 where unemployment is more than twice the national average, at 18 percent.

They need some BLS seasonal adjustments, and an election or two: unemployment would plunge to 0.0% overnight.

Chinese and Indian bidders have been frontrunners for deals to develop Afghan mineral deposits valued at up to $3 trillion, worrying Western firms that have hesitated to invest because of security concerns.


The country is now bracing for the end-October bid closure for oil deposits in the Afghan Tajik basin, also in the north and which, at an estimated 1.9 billion barrels, is the biggest ever oil project in Afghanistan.


Interest shown by Exxon Mobil in July lent credence to hopes the government may be making progress in efforts to lessen its reliance on aid, though Shahrani told Reuters last month the U.S. group had not come to look at it.

Correct: in fact Exxon is increasingly looking to divest various regional interests, with just two short days ago news hitting that Exxon was "in talks to sell its stake in a contract to develop a multibillion-dollar oil project in southern Iraq." The winner, as the insolvent west increasingly seeks to abdicate regional resource control, will once again be China.

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robertocarlos's picture

Canadian energy decisions are made in the best interests of the USA.

James_Cole's picture


This Tyler has no idea what he's talking about re: Canadian M&A Nexen / China deal (unless this article is entirely sarcastic), the whole thing is so egregious that a government that otherwise is OK with some 'tweaks' to Canadian constitution may not be able to stomach it. 

Sure, China (fascist) will go to Afghanistan (failed state) where they don't have to worry about pesky things like rule of law. Poor investors, so terrified of big bad Canadian gov poo-pooing their M&A deals.

As if, what a bunch of nonsense. The last thing Canada needs is more foreign take-overs of natural resources and certainly this blocked deal is not going to "ice-9" other m&as, foreign countries are climbing over each other to snap up the resources. 


lizzy36's picture

Really? The last thing Canada needs?

Government of Canada believes we are going to need $700B to develop these resources over the next decade (so the real number is closer to 2x that amount) Where is that $1 trillion going to come from? 

Petronas is paying NPV of a fully developed resource (think 2022 valuation) to Progress Shareholders. Fifty percent of those shareholders have already redeployed that capital in the sector, helping other junior/intermediate names. Further the Canadian government is getting the "net benefit" of all the capital gains from the Progress Shareholder in 2012 not 2022. Additionally, Petronas was going to spend BILLIONS developing an LNG plant near Prince Rupert. 

So lets see, jobs, taxes, and a LNG plant all accure to Canada. But i guess we don't want that. I guess we are going to now go the central planning route where government knows best. 

Deals were already on "ice" until "net benefit" was defined in CNOOC/NXY. Those same deals are now being ICED. Canada has spent the last year telling ASIA that "we are open for business". With one midnight decision we just closed until further notice. To believe differently means you weren't in the office in Calgary yesterday.

James_Cole's picture


Sure Lizzy the sky is falling right? There will NEVER EVER BE ANOTHER CENT OF FOREIGN INVESTMENT AFTER BHP.. oh wait! If I was a shareholder I'd be mad, but whatever, everyone going in knows the stakes. Shareholders always whine when their easy buy doesn't go the way they wanted. Well boo hoo. 

As far as Petronas, they can claim anything they want but there's no way to actually audit them. And not only is the deal still a possibility there are also known other players involved who could step in and may have a more transparent alternative. 

The Nexen deal is completely different and a whole other story and it seems absurd to compare the two. 

Harper said Canadians need to give up some sovereignty in exchange for prosperity but the question is how much sovereignty for how many $ and what kinds of opaque foreign governments will be running large swaths of the Canadian economy? 

This same deal would NEVER be approved in Malaysia. 

Oh also, I said FOREIGN TAKE-OVERS - particularly by soverign nations -not FOREIGN INVESTMENT. Of course Canada needs foreign investment. 


lizzy36's picture

So your "net benefit" test included a) the same deal being approved in Malaysia and b) we can't audit Petronas. 

Btw, our trade with Malaysia is less than $1 Billion a year. Malaysian GDP is under $350B a year, not exactly like we are looking to do many deals there.

So conversely we should approve NXY/CNOOC bc a) the same deal would be approved in China (clearly johnny on the spot here as a USD$300m deal by BNS to take over a chinese banking unit was expected to close in December 2011. so by my count running into it's 11th month of NOT being approved  and b) we can audit CNOOC? (canada can send in its own auditors).

Many players? There were 3 bidders. All three foreign although Exxon was less foreign than the others.

Until BIDDERS know how to quantify "net benefit" there will be NO bidding. 

Btw, the big difference betweem NXY and PRQ is that NXY only has 30% of its operations in Canada. But NEITHER NXY nor PRQ (at 43,000 boe/d equivalent) are viewed as strategic Canadian assets.

China is the defination of an opaque foreign government. They just happen to be our 2nd largest trading partner and the worlds 3rd largest economy. The quid pro quo for approving the NXY/CNOOC is conversely that much larger. Holding up Petronas may just be colleteral damage in getting what we want from the Chinese.

But at the end of the day, Canada looks like a complete banana republic, by having the Feds hold up a deal (on a company that barely qualifies as an intermediate producer) that 5 weeks ago didn't even register as a possible "Investement Canada/ Net Benefit" issue.

Before a acquiror spends millions just to begin a take-over-bid, they need to know the rules. By changing the rules after the deal was done, we really shot ourselves in the foot!

James_Cole's picture

I'm not going engage your strawman argument. 

"Until BIDDERS know how to quantify "net benefit" there will be NO bidding."

Really? Reality disputes this assertion. Should it be more defined? Sure.

"Holding up Petronas may just be colleteral damage in getting what we want from the Chinese."

The Chinese don't give a shit about Petronas, it's a good issue for the Canadian press to pump out words over though. 

"But at the end of the day, Canada looks like a complete banana republic, by having the Feds hold up a deal (on a company that barely qualifies as an intermediate producer) that 5 weeks ago didn't even register as a possible "Investement Canada/ Net Benefit" issue."

Yes, China is now terrified of dealing with Canada as a newly discovered banana republic. Investors are THAT stupid, if you read NP I guess this statement is true. 

"Before a acquiror spends millions just to begin a take-over-bid, they need to know the rules. By changing the rules after the deal was done, we really shot ourselves in the foot!"

How did they "change the rules"? People simply assumed the deal would go through on an undefined criteria and it didn't. Shareholders are upset their Christmas present didn't arrive and are trying to put pressure on the Canadian gov to wrap this thing up. Because if Harper doesn't throw down the stamp all foreign investment will dry up forever because it's terrifying for extraction companies to deal with banana republics. 

And as we all know Canada is famously adverse to business interests as compared to the beacon of transparency & reliable regulation known as China, Canada's 2nd largest trading parnter. 

lizzy36's picture

So, to be clear, you actually did engage in "strawman" arguments.

Of course, in engaging you made it clear that you understand neither finance, or politics.

Nice try. Now go back to getting your information from the Toronto Sun. Seems to be doing you a world of good.

James_Cole's picture

"So, to be clear, you actually did engage in "strawman" arguments."

I guess you don't know what a strawman argument is. 

"Nice try. Now go back to getting your information from the Toronto Sun. Seems to be doing you a world of good."

Lizzy resorting to the standard "When you have no basis for an argument, abuse the plaintiff."

CPL's picture


You can both enjoy the show come monday when public pensions once again get BreX'ed.

markmotive's picture

We just made our overlords very happy. And rich(er). At our expense.

The oil game and geopolitics is all just a bunch of smoke and mirrors. Watch this documentary:

FrankDrakman's picture

This is a good decision. CNOOC is not like other companies; it is an arm of the Chinese Communist government. Same thing with the Malaysian deal.

I don't mind private companies investing in Canadian resources, but I sure as hell don't want foreign governments doing it. And I sure as hell don't want to give foreign governments investment rights in Canada that those same governments deny to both private and government owned Canadian firms who'd like to invest in China.

When China decides to let Canadian firms buy into their, say, rare earth metal mines, or even operate without some local Chinese partner, as they must have today, then I'd be willing to reconsider. But to accept some "heads China wins, tails Canada loses" proposal is asinine. What's our BATNA? Walk away; they need our oil more than we need their money. Other companies who do have reciprocal rights with Canada will come along, and if the price of oil rises, the deals will only get better.

SWRichmond's picture

Luckily, US troops are still in Afghanistan to make sure China can extract Afghanistan resources at terms beneficial to China and Afghanistan... If not the US.

This is the only part of this that matters.  Do you get it now?  Our people will die to keep the Chinese from selling T's.  Got it?

robertocarlos's picture

It says "luckily", was that sarcasm? Canada lost almost 200 in Afghanistan for nothing. Or maybe so some girls could go to school. Your soldiers will die for banksters. 

Urban Redneck's picture

The deal wasn't actually killed, the authority having jurisdiction requested more info, pushing the "new" decision date to after the US election.  Any "final" announcements between now and Nov. 6 are subject to immediate revocation based on the outcome of said election.

GoldmanSux's picture

Good point. And possibly related to approval of the Keystone pipeline, and Exxon's obvious interest in the assets of this region.

JOYFUL's picture

Canadian energy decisions are made in the best interests of the USA.

Somewhat akin to saying 'hockey is a game played with sticks'...while not factually incorrect, such a statement misses the key element of the sport = that it is played on ice - and therefore, not golf.

Canadian political decisions[period]are made according to what is viewed as being in the best interests of the sionist cabal which owns Canadian and Merikan politicians...and so it has been for almost half a century. The ''best interests" of America are sadly missing from such decision-making. 

When Canadian politicians are seen clearly by the rest of the world as openly pandering to israeli foreign policy, the people who allegedley elected these puppets are left in the dark by their controlled media disinformants...a veritable 'kosher kurtain' now hangs over the western world, through which all news is filtered to keep the sheep asleep. 

Canada has refused to approve the takeover of an energy company by a Malaysian State corporation because Malaysia is a Muslim country where a strong undercurrent of opposition to usury banking systems has curtailed the ability of the usual suspects to invade and despoil in the usual manner. “Allah has permitted trade and forbidden Riba*” is an oft quoted passage there that best sums up the distinction between kosher kapitalism and actual 'free enterprise.'

These challenges are dealt with in a predictable manner: where feasible, Zato puppet forces are sent in to demolish the non-subservient state ...or purchased proxy forces sent to do the same...Malaysia is currently outside of the circuit through which this manner of punishment is operational ...other tools are being developed by the banking cartel to eliminate competition to their monopoly of money. like the financial terrorism against Iran.

*Riba - usury finance.


SWIFT 760's picture

Joyful, well informed and accurate. The Zionist kikenvermin have paid in cash to buy politicians or more effectively threatened their lives and families. 

Malaysia is looking very hold land title, English speaking, pro foreign investment, great food and culture. 

Additionally, Malaysia has been practicing use of gold and silver in certain sectors of economy. Malaysia is way ahead of the curve.

USrael sucks, rotten to the core. 


SWIFT 760's picture


Let this be the end of zionist central bank global fiat debt slavery. Fuck the kikes. 

DosZap's picture

Such as Afghanistan. As Reuters reports, in a historic development, and in a key staking of regional energy claims, a Chinese oil firm, China National Petroleum Corp, has just started oil production in the country which still has thousands of US troops on the ground.

Move along, nothing to see here.............................

Except same old story, we leave dead Americans, and our enemies reap the benefits.What a way to LIVE!!!!!!!!!!.

I cannot think of ONE place the US has reaped long term bennies, for getting involved in wars, that only send us dead Americans as interest.

We are a stupid bunch of Asses.

A Nanny Moose's picture

National interests my ass. National interests is the same interest as the bureacrats running the show.

When in order to produce, you need permission from those who produce may know your society is doomed.

Never One Roach's picture

The Aliens must buy more wooden boxes in Vancouver to prop up the Bursting RE Housing Bubble. We will also allow them to buy condo boxes.........No oil or gold sales allowed to the Foreigners.

Vegetius's picture

"Them that have the gold makes the rules"  -



However they will need more than a piece of paper if they want that agreement honoured. Boots on the ground yeah baby! They will need them in Africa as well, I wait with baited breath for that clusterfuck operation by the People’s Liberation Army of the People's Republic of China. (Lets all remember the last fight they had with Vietnam, better get google maps guys)

Bobbyrib's picture

Seriously, they have been baited into a clusterfuck.

LMAOLORI's picture



The peace prize president already has boots on the ground in Africa and drones too


Ground troops are in Africa without congressional approval

and he might send a lot more

The Obama administration is contemplating broad military, political and humanitarian intervention to stop a slide toward chaos and Islamic extremism in Mali, the top State Department diplomat for Africa said Thursday.


nmewn's picture

No Blood for...wait a minute.

pauhana's picture

No Chinese blood for . . .

nmewn's picture

It appears so. So "the pipeline" will still be built, it'll just end somewhere else.

Oh, thats just splendid ;-)

Mactheknife's picture

Our banking cartel owned and operated government doesn't give a rat's ass who gets the oil...just as long as they sell it in dollars.  The real problem of course is that China won't be selling this oil, just shipping it home. Maybe it was "Give us that oil and we won't dump your Treasuries." Just sayin...

nmewn's picture

That may not be such a bad thing...its around 8-10% outstanding last I looked (so they say).

I've long held the opinion that...if I had a few trillion in debt I wanted to hide...would I say I hid it in a closed society or an open one, maybe with a side agreement of non-disclosure due to trade...say, Apple? They need to keep a billion people from going bat-shit crazy on them instead of several millions here.

Just sayin, I don't trust what either say about accounting at this point.

Tom of the Missouri's picture

I think you mean "There Will Be Blood".   Didn't you see the picture at the end of the article?   It was an incredibly great movie, at least from the perspective of a capitalist like me.  I am sure the hollowood writer and director did not mean it that way, but that is the way I took it.  If I had pitched it I would have said it was "John Galt the oil man lashes back instead of disappearing."  I could relate to his pain and his anger.  It is a sad sign of the times that today's capitalist can all be found in China.  And yes, it is likely there will be blood again.

Matt's picture

1950 barrels per day. 365 days in a year. 1.5 million barrels per year. 1950 * 365 = 711,750. hmmm somethings missing or not right.

Are the Chinese taking resources we fought for, or was this agreed to in advance, in leiu of recieving dollars of equal value for dollars lent? 


CrashisOptimistic's picture

Well done, sir.  I was jumping on that number failure, too.

These are hype projections. THEY WILL NOT GET THAT MUCH OIL FLOW OUT, and we don't really know if it's truly oil or faux oil (aka NGLs).

There is SO much bullshit being spouted about what oil is going to come out of the ground that it is all mind boggling.

That celebrated 1.5 billion (which is likely 30% recoverable, at most) btw, is about 1/30th of 1 year of world consumption.

As usual, this announcement is silliness.

DoChenRollingBearing's picture

I disagree with premise that China is the only winner if they start producing oil in Afghanistan.  We all win.

I think ExxonMobil has always had it right.  It is the production (flow) that matters, not who "owns" the production.  China has this "Risk Player" (as in the game of Risk) that resource ownership (especially oil) mentality that ownership is key, it is not.  The key is to explore and produce more oil, and let it find its own markets!  Simple capitalism!


dick cheneys ghost's picture

Is this oil priced in dollars or yuan?

DoChenRollingBearing's picture

It does not matter, of course.  Once the oil that is shipped (by sea anyway), it is all fungible, a better deal comes along for Shell or Chevron, that oil changes ports (at least per contracts).

Even if the oil in Afghanistan goes by pipeline to China, that is oil that is NOT NEEDED by China from another seller, leaving that seller free to sell their oil to anyone else.

Production (flow) is what really matters.

Matt's picture

I think you are talking about two different things, and are both right. You are talking about oil as a global, fungible commodity, while the other side of the coin is US Dollar Hegemony. The more oil that trades for anything other than US Dollars, the faster America loses reserve currency status.

So, from the perspective of supply and demand, you are correct, it does not matter. However, the more oil is traded in Yuan, the faster the USD destabilizes.

DoChenRollingBearing's picture

Correct Matt re both of your points.

rwe2late's picture


leaving that seller free to sell their oil to anyone else

Don't any of these "sellers" need to own the oil they are selling?

Mactheknife's picture

>Production (flow) is what really matters.


cranky-old-geezer's picture



I doubt there is any oil China produces anywhere that China doesn't need.

Is the US compromising the petrodollar to keep a trillion of treasuries from being dumped?

Or placating China in Afghanistan hoping for a pass from China vis a vis Iran?  (which won't happen)


Coke and Hookers's picture

This is true progress through globalization. First America moves her factories to China and spends all her wealth paying for Chinese goods instead of creating them herself. Now America occupies countries for China so it can get the resources to to make goods to sell to America instead of only occupying countries for Wall street bankers as she has in the past. I can see nothing here but harmony, global bliss and progress.

Matt's picture

Reagan's Plan to defeat the Soviets by surrendering to the Chinese?

blindman's picture

Renaissance 2.0 - Financial Empire - Full Length - Damon Vrabel

Kayman's picture

Perhaps the U.S. can hand over Afghanistan to the Chinese.  A little bit like how the French, exhausted and impoverished, handed the Vietnam grenade over to Uncle Sam.

DoChenRollingBearing's picture

+ 1

Yes, it would serve them right.  Their turn in Afghanistan anyway.

Schmuck Raker's picture

The US is not withdrawing from Afghanistan.

We are advancing in the opposite direction.