CNOOC in US$15b deal to snap up Canadian giant

PUBLISHED : Tuesday, 24 July, 2012, 12:00am
UPDATED : Tuesday, 24 July, 2012, 12:00am


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China National Overseas Oil Corporation, the mainland's dominant oil and gas producer, will pay US$15 billion for Canada-based Nexen in what would be the country's largest overseas acquisition.

The deal, unveiled yesterday, marks CNOOC's second attempt at taking over a major North American oil and gas company.

In 2005, it failed to buy California-based Unocal for US$18.5 billion after US political opposition.

The proposed deal to acquire all of Nexen tops the US$14.32 billion paid for a 12 per cent stake in Australian mining giant Rio Tinto by Aluminium Corporation of China and US partner Alcoa in 2008.

Within the oil and gas sector, the Nexen deal would be far bigger than the US$9 billion acquisition of Switzerland-based Addax Petroleum in 2009 by China Petrochemical, parent of listed China Petroleum & Chemical (Sinopec), according to figures from data provider Dealogic.

The latest deal reflects Beijing's strategy of enhancing energy security by diversifying resources away from politically unstable regions such as the Middle East to more stable regions including North America and Europe.

In a statement to the Hong Kong stock exchange, CNOOC said it will pay US$27 for each Nexen share, representing a 61 per cent premium to Nexen's closing price last Friday on the New York Stock Exchange. CNOOC and Nexen have been partners in an oil sands project in Canada for about a year and have an oil exploration project in the Gulf of Mexico.

Nexen's board has approved the deal but it is also subject to the approval of shareholders of both Nexen and CNOOC, as well as regulators in Canada, China and the US, because some of Nexen's assets are located in the Gulf of Mexico.

The deal aims to be completed in the fourth quarter, assuming it gets the regulatory nods. 'Major acquisitions like this reflect global oil and gas firms' struggles to boost production,' said Gordon Kwan, head of energy research at Mirae Asset Securities.

Acquiring Nexen will boost CNOOC's output, which has suffered after a major oil spill last year halted production at one of its largest oilfields, Penglai 19-3, a joint venture operation with US-based ConocoPhillips in Bohai Bay.

Kwan said the hefty premium offered by CNOOC was fair, given Malaysian state-owned oil and gas firm Petronas offered a 77 per cent premium last month to buy its Canadian shale gas joint venture partner Progress Energy Resources. He added that CNOOC would gain from Nexen's expertise in developing shale gas, an unconventional energy resource, and oil sands resources.

The mainland has huge shale gas reserves but lacks the expertise to exploit them.

Separately, Sinopec, the nation's biggest refiner, agreed to pay US$1.5 billion for a 49 per cent stake in Calgary-based Talisman Energy's UK unit, gaining access to oil and natural-gas fields in the North Sea. That deal is also subject to regulatory approval.