Oil giant CNOOC to buy Canada’s Nexen for US$15.1b

SHANGHAI — China moved yesterday toward its biggest overseas energy acquisition as offshore oil and gas giant CNOOC Ltd announced an agreement to buy Canadian producer Nexen Inc for US$15.1 billion. The deal faces scrutiny from the Canadian government, which has rejected foreign interest in the past over worries about the country’s natural resources industry. CNOOC and other big state-owned Chinese energy companies have increased purchases of oil and gas assets in the Americas as part of a global strategy to gain access to resources needed to fuel China’s economy. The companies have moved more carefully since CNOOC tried seven years ago to buy Unocal but was rejected by US lawmakers citing national security fears.

Total acquisitions by Chinese energy firms jumped from less than US$2 billion between 2002 and 2003 to nearly US$48 billion in 2009 and 2010, according to the International Energy Agency. More times than not, the companies are paying above the industry average to get those deals done. Indeed, the offer of $27.50 a share is a premium of 60 per cent to Nexen’s closing price Friday on the New York Stock Exchange. Shares rose 52 per cent in US$25.95. CNOOC expects the takeover to be finalised in the fourth quarter of this year, pending government approvals. Calgary, Alberta-based Nexen operates in western Canada, the Gulf of Mexico, North Sea, Africa and the Middle East, with its biggest reserves in Canadian oil sands. It produced an average of 213,000 barrels of oil equivalent a day in the second quarter of this year. The acquisition vastly expands CNOOC’s holdings in Canada, where the company has already invested about US$2.8 billion. Besides oil sands, Nexen is also active in exploring for natural gas in shale rock formations.

It owns about 300,000 acres of shale-gas blocks in the Horn River Basin in British Columbia. The big Chinese oil companies are interested in developing shale-gas technology to find new supplies in China. In the US, where companies have solved the technological challenge of extracting natural gas from shale, a boom in production has meant cheap natural gas for homeowners, businesses, factories and utilities in the US. Canada said the takeover offer will face a review by both its industry minister and the Competition Bureau, an independent law enforcement agency. Industry Minister Christian Paradis said in a statement that he will review how the deal affects investment, employment, production and resource processing in Canada. He said the Competition Bureau will determine if the deal substantially lessens Canada’s ability to compete in global markets. He did not give a timeline for the reviews. It will be a tough call for the government, which has to decide whether the deal is a net benefit to Canada as a whole and not just to shareholders, said University of Calgary economist Jack Mintz.