Chinese energy giant
) bid to acquire the Canadian energy producer
) for approximately $15.1 billion in cash has successfully cleared
one barrier with the approval by Nexen shareholders.
CNOOC LTD ADR (CEO): Free Stock Analysis Report
NEXEN INC (NXY): Free Stock Analysis Report
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On September 20, 99% of Nexen's common shareholders and 87% of its
preferred shareholders voted in favor of the deal. Per the
agreement, which was announced on July 23, CNOOC intends to buy all
the outstanding common shares of Nexen for $27.50 per share,
representing a premium of 61% to its closing price on the New York
Stock Exchange on July 20.
However, public opinion regarding the deal has been overwhelmingly
negative with detractors concerned about such a significant
possession going into Chinese hands. We note that the CNOOC bid
marks the biggest Chinese takeover attempt so far.
The contract is still subject to the approvals from Canada's
industry ministry and from U.S. and European regulators. The
developed world will now be faced with a potent test of accepting
Chinese capital that would also mean the relinquishing of control
over strategic resources.
Calgary, Alberta-based Nexen operates in western Canada, the Gulf
of Mexico, North Sea, Africa and the Middle East, and has its
biggest reserves in the Canadian oil sands. Apart from oil sands,
Nexen remains dynamic in natural gas exploration in shale rock
formations. It owns approximately 300,000 acres of shale-gas blocks
in the Horn River Basin in British Columbia.
China's third-largest oil company, CNOOC's current production gives
it only nine years worth of reserves that represents one of the
lowest reserves among key oil companies in the world. The upcoming
deal would raise CNOOC's proven reserves by 30% and will help it to
vastly expand its holdings in Canada, where it has already spent
about $2.8 billion since 2005. Moreover, buying Nexen would make
CNOOC the operator of the largest oil field in the U.K. and the
biggest contributor to Forties Blend crude − Buzzard.
Being the world's second-largest economy, China has a huge energy
requirement. The acquisition of Nexen is in sync with the present
strategy of CNOOC and other Chinese biggies to make a deeper
international foray in order to meet domestic demand.
According to the International Energy Agency, CNOOC and other major
state-owned Chinese energy companies made less than $2 billion
worth of total acquisitions between 2002 and 2003. Notably, it
jumped to nearly $48 billion in 2009 and 2010.
We maintain our long-term Neutral recommendation on CNOOC. The
company currently retains a Zacks #4 Rank (short-term Sell