State-controlled CNOOC Ltd launched one of China's richest take-over bids yet on Monday by agreeing to buy Canadian oil producer Nexen Inc for $15.1 billion, forcing Ottawa to decide whether national security concerns outweigh its desire for foreign investment in its energy resources.
CNOOC, China's third-largest oil company, hopes to sell the deal to shareholders and the government by offering a hefty 61 percent premium to Nexen's Friday stock price, pledging to retain all employees and promising to make Canada home base for its Western Hemisphere operations.
CNOOC is offering $27.50 cash a share for Nexen, which has oil sands operations in the Canadian province of Alberta, shale gas in the province of British Columbia and extensive exploration and production holdings in the North Sea, Gulf of Mexico and offshore West Africa.
The move is the most ambitious foray by resource-hungry China into North American energy since a 2005 attempt to buy US-based Unocal for $18.5 billion was thwarted by a political backlash there. "For Canada, this agreement provides a stable source of investment for the many projects that Nexen operates, which includes the exploitation of bitumen in Alberta," CNOOC Chief Executive Li Fanrong said in a conference call. "Because we intend to be a local company as much as a global one, we also intend to seek a listing for CNOOC Ltd on the Toronto Stock Exchange." CNOOC has only nine years worth of reserves based on its current production - one of the lowest ratios among major oil companies world-wide - and said the deal would increase its proven reserves by 30 percent.
"CNOOC has been seeking overseas acquisitions, as the domestic reserves are limited. But there has been many limits, things like foreign companies (being) reluctant to sell, price too high. This deal would be quite a success," said Yan Shi, an o il analyst at brokerage UOB Kay Hian in Shanghai. The move was quickly followed by another Chinese move on Canadian-owned oil assets, as Sinopec Corp said it would buy 49 percent of Talisman Energy's British unit for $1.5 billion.
CNOOC already has a number of co-operation deals with Nexen, which operates in many of the world's most significant producing regions. Nexen, which recently underwent a management shake-up, has been seen for some time by investment bankers as a potential target.
Analysts had been referring to the company as a turnaround story since Kevin Reinhart took over as interim CEO early this year. He was showing success in improving the reliability of such projects as the huge Buzzard oil field in the North Sea after years of missed production targets. "It's a good deal for shareholders because I think the stock had historically been trading at a very big discount to its net asset value because of management's less than stellar execution on the operations," said Norman MacDonald, vice president and portfolio manager at Invesco Trimark.
Shares of Nexen, whose board unanimously approved the deal, surged C$9.23, or 53 percent, to C$26.52 in Toronto on Monday. CNOOC made its first tentative Canadian investment in 2005, paying C$122 million ($120.8 million) for a 16.7 percent share of the then-private oil sand developer MEG Energy Corp. It completed a C$2.1 billion acquisition of Opti Canada Ltd in November, giving the Chinese company its second stake in a Canadian oil sands company and giving it a share in Nexen's Long Lake oil sands development.
FOREIGN INVESTMENTS The deals in Canada have not yet stirred the level of political opposition that killed CNOOC's $18.5 billion Unocal bid. But Canada can review and block any foreign investments worth more than C$330 million if it thinks a deal is not in Canada's best interests. It most noticeably exercised that right in 2010 when it blocked Anglo-Australian miner BHP Billiton's $39 billion hostile take-over of Potash Corp, the world's top fertiliser producer. Canada's industry minister confirmed on Monday that he would conduct a review, as required by law.