Nexen Closes INPEX Divestiture Deal - Analyst Blog


Canadian oil and gas company Nexen Inc. ( NXY ) has wrapped up its divestiture agreement with the consortium led by Japan's INPEX CORPORATION. The transaction was closed at $700 million, comprising 50% upfront payment and the balance in capital carry.

Per the deal − announced last November − Nexen divested its 40% working interest in its northeast British Columbia (BC) shale gas assets, enabling it to hold its operatorship interest of 60% in the joint venture domain that is located in the Horn River, Cordova and Liard basins of northeast BC.

The divested stake of the joint venture will be controlled by the consortium INPEX Gas British Columbia Ltd. ("IGBC") that was established by Japan's largest oil and gas company INPEX (82%) and JGC Corporation (18%). JGC is an engineering contractor with potential in project management in refining, gas processing, liquefied natural gas (LNG), and petrochemicals.

Nexen received approximately $821 million in cash from IGBC upon the completion of the deal. The payment included an initial cash payment and the Japanese affiliates' share of costs since the effective date of the transaction. The remaining carry amount was $106 million.

Currently, Nexen and IGBC remain busy with their appraisal and development activities across Horn River and Cordova − that is jointly estimated to contain 4-5 trillion cubic feet (Tcf) of recoverable contingent resource, and the Liard basins with about 5-23 Tcf of gas potential.

Nexen intends to complete the drilling operation on the 18-well pad in the fourth quarter of 2012, leading to increased gross production volumes of approximately 175 million cubic feet per day (MMcf/d) from approximately 50 MMcf/d. Additionally, Nexen and IGBC plan to jointly appraise shale assets and examine the feasibility of LNG exports.

Calgary, Alberta-based Nexen has a diversified portfolio of exploration and production operations in Canada, the U.S. Gulf of Mexico, North Sea (U.K.), Yemen, Nigeria and other areas. We believe that the company's multi-year inventory of development projects and endeavors will aid in accomplishing the targeted growth level.

Of late, Nexen has been in the news with Chinese energy giant CNOOC Ltd. 's ( CEO ) deal last month to purchase the company for approximately $15.1 billion in cash. Per the agreement, which is expected to be wrapped up by this year-end, 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.

Nexen retains a Zacks #3 Rank, which is equivalent to a Hold rating for the period of one to three months.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: BC , CEO , LNG , NXY

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