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  • Apr 24, 2014
  • Updated: 10:27am
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Nexen loses steam after CNOOC bid

But traders say the deal's wide arbitrage spread makes potential earnings attractive

PUBLISHED : Friday, 07 September, 2012, 12:00am
UPDATED : Friday, 07 September, 2012, 3:01am

Shares in Canadian oil and gas explorer Nexen have lost 2.9 per cent since Beijing-based CNOOC's takeover offer was announced on July 23, leaving them 8.5 per cent below the agreed price. But arbitrage traders such as MKM, Oscaar Gruss and GFI say the difference offers a chance to make money because the deal will probably close, driving the stock to the US$27.50-a-share bid.

While the majority of Canadians in a survey commissioned by Sun News Network want the government to reject the purchase of Calgary-based Nexen by CNOOC, Natural Resources Minister Joe Oliver said on Tuesday that Canada needed foreign investment to develop and market its raw materials.

Nexen's Gulf of Mexico operations are not "national treasures" that would prompt the United States to raise obstacles to the deal, according to MKM, which also said the arbitrage spread was so wide that potential earnings would prove alluring even if approval was delayed.

"I would be a buyer," Alfredo Scialabba, a New York-based special situations analyst for GFI, said. "The risk reward is very attractive."

Pierre Alvarez, a spokesman at Nexen, did not respond to a phone call and e-mail requesting comment. Peter Hunt, a CNOOC spokesman who works for Hill & Knowlton Strategies, did not comment on the deal's odds of success or timing.

In July, CNOOC agreed to buy Nexen in the biggest overseas takeover by a Chinese company. China's largest offshore oil and natural gas explorer said it would pay 61 per cent more than Nexen's prior closing price.

About 30 per cent of Nexen's production last year came from its Canadian operations. Its oil and gas assets include production platforms in the North Sea, the Gulf of Mexico and Nigeria, as well as oil sands reserves at Long Lake, Alberta, where it already produces crude in a joint venture with CNOOC.

The deal is subject to review under the Investment Canada Act, which requires that foreign takeovers provide a "net benefit" to the country.

The Committee on Foreign Investment in the US, which has Treasury Secretary Timothy Geithner as chairman, will also examine the transaction.

CNOOC had applied for Canadian approval, Interior Minister Christian Paradis said on August 29. The process can take 75 days or longer, putting the results at about November 12 or later.

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