Chinese Oil's North American Acquisition

CNOOC Offers $15.1 Billion for Canada's Nexen


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By Brianna Panzica
Monday, July 23rd, 2012

On Monday, China's CNOOC Ltd. (HKG: 0883) announced its plans to acquire a Canadian energy company in a deal worth $15.1 billion.

Nexen Inc. (TSE: NXY) is an oil and gas company based in Calgary, Canada. The company operates in conventional oil and gas, oil sands, and shale gas production.

The company's operations are based in Canada, the UK, and Africa, with exploration plans in Colombian and Polish shale deposits.

Right now, they're operating shale gas drilling in the Horn River Basin in British Columbia, where production levels are at 50 million cubic feet per day (mmcf/d) but are expected to reach 175 mmcf/d later this year.

And of course, the Chinese company would gain access to all of this in the acquisition.

Nexen has accepted the offer of $27.50 per share, which equates to a 61% premium on Friday's closing price of $17.06.

CNOOC has even thrown in a few things to sweeten the deal. For one, they will allow the company to remain listed on the Toronto Stock Exchange. For another, they'll allow Nexen executives to control North American assets from Calgary.

The acquisition will still require approval from the Chinese, Canadian, and United States governments, but CNOOC executives remain confident.

From the Wall Street Journal:

“The Nexen acquisition is a big investment in Canada for our company,” said Cnooc Chief Executive Li Fanrong in a conference call. “We think Canada is one of the best destinations for overseas investment.” He added, “we will actively work to promote approvals from governments of Canada, U.S. and China.” Mr. Li said the acquisition would help Cnooc increase its reserves by 30% and output by 20%.

China oil imports continue to increase each year. For the first half of this year, oil imports increased 11% from last year to 5.6 million barrels a day.

And it's not just oil. China requires more of every energy source as it develops and continues to industrialize. Even coal, a common Chinese export, has turned to imports, with a 61% jump in imports for the first half of 2012.

This acquisition will be huge for the world's second-largest energy consumer. Not only will it provide access to profitable North American shale gas reserves, but it will also move Chinese production into important conventional oil and gas reserves.

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It's the biggest move so far by Chinese companies into North American reserves. And both ends are finding it attractive.

From Reuters:

“You won't find a single shareholder on the entire planet, or in the solar system, who is unhappy with this deal,” said David Taylor, president and chief investment officer of Taylor Asset Management.

CNOOC will file an application soon for approval from the Canadian government.

Nexen closed at $26.35, a $52.40% gain from Friday's close. CNOOC was down 3.14% to $15.44.

That's all for now,

Brianna


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