Chinese energy giant
) has cut a deal to purchase Canadian energy producer
) for approximately $15.1 billion in cash. The deal, the country's
biggest foreign takeover so far, reflects the international land
grab trend among the Chinese energy companies.
CNOOC LTD ADR (CEO): Free Stock Analysis Report
NEXEN INC (NXY): Free Stock Analysis Report
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Per the agreement, CNOOC will buy all the outstanding common shares
of Nexen at $27.50 per share, representing a premium of 61% to its
closing price on the New York Stock Exchange on July 20. The deal,
which is expected to be wrapped up by this year-end, requires
approval by two-thirds of Nexen's shareholders as well as approvals
from regulators, including those in the U.S.
China's third-largest oil company, CNOOC, expects to fund the
acquisition with its existing cash resources and outside financing.
It also added that Nexen's debts of about $4.3 billion would remain
Upon the successful completion of the deal, CNOOC will list its
shares on the Toronto Stock Exchange. It will also retain Nexen's
existing employees, and establish Calgary as its North and Central
American headquarters. CNOOC also added that Nexen can terminate
the deal and consider a better proposal, but in doing so, it will
have to pay CNOOC $425 million as a breakup fee.
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.
China being the world's second- largest economy 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. Since the
last two years, CNOOC has been bidding billions of dollars in
overseas properties to increase its yield. The latest deal marks a
major step in the company's goal to boost its output level by
approximately 2.7% this year.
Strength of the Acquiree
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.
During the second quarter, Nexen's production before royalties
averaged 213 thousand barrels of oil equivalent per day/MBOE/d (207
MBOE/d net of royalties). Production before royalties increased
4.4% year over year, and on a net-of-royalty basis, it grew 15%.
The company had 900 million barrels of oil equivalent (MMBOE) of
proved reserves and 1,122 MMBOE of probable reserves as of December
Other Foreign Moves
Last year, CNOOC completed the C$2.1 billion acquisition of OPTI
Canada Ltd and achieved stake in a Canadian oil sands company and a
share in Long Lake project. Back in 2005, the company made its
first Canadian investment in which it paid C$122 million ($120.8
million) for a 16.7% stake of the private oil sand developer MEG
However, the Chinese energy companies have moved more carefully
after CNOOC's attempt to acquire U.S.-based exploration and
production company Unocal for $18.5 billion was disappointed by a
political backlash seven years back. The deal was rejected by U.S.
lawmakers on fears of disturbing national security.
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.
Rank & Recommendation
We maintain our long-term Neutral recommendation on CNOOC. Also,
the company currently retains a Zacks #3 Rank (short-term Hold