CNOOC gets hand on Brent pricing
levers By Robert M Cutler
MONTREAL - The US$15 billion purchase by
China-based offshore oil and gas producer CNOOC of
Calgary-based Nexen Inc, Canada's sixth-largest
independent oil explorer and producer, marks the
biggest foreign acquisition ever by a Chinese
CNOOC has agreed to buy all
Nexen's outstanding common shares at US$27.50 cash
per share, nearly a 62% premium over what the
stock was trading at before the announcement.
Total cash to be paid for Nexen's common and
preferred shared will reach US$15.1 billion. The
company's current debt of $4.3 billion will remain
outstanding. The transaction will close within
three to six months.
said the deal shows how China has learned
from earlier debacles -
and not just Chinese ones - including an attempt
by Australian miner BHP Billiton Ltd to buy
fertilizer maker Potash Corp for $39 billion in
2010, a deal killed by the Canadian government.
The Nexen acquisition is considered by
some analysts an especial triumph for CNOOC, the
country's third-largest oil company, which was
forced in 2005 to abandon an $18.5 billion for
US-based Unocal due to opposition from the US
Congress over sovereignty issues. It may also
signal a new direction in Chinese purchases of
foreign oil interests. Nexen operates the North
Sea's Buzzard oil field, the biggest contributor
to the Forties oil blend, giving it access to
trading that sets the price for Brent crude.
The fact that the deal is for a full
takeover of the company rather than purchase of a
minority stake surprised some observers, since
Chinese firms have lately preferred the latter
course in order to calm such objections.
Analysts at Nomura also argued that CNOOC
lacked the operational expertise to improve
Nexen's slow production growth, pointing to the
range of the Canadian company's assets from oil
sands and shale gas to deepwater projects in the
Gulf of Mexico and in the radically different
conditions of the North Sea. It also operates
conventional exploration and development projects
in South America, offshore West Africa, and in
The Chinese side are reported to
have made a number of concessions during the
negotiations. Among these are agreements that
CNOOC make Calgary the head office of its North
and Central American operations, list on the
Toronto Stock Exchange, and retain Nexen
The final decision whether to
approve the deal has to be made by Canada's
Industry Minister Christian Paradis, in
conformance with the Investment Canada Act.
Analysts noted that most of Nexen is viewed as
less of a Canadian "national champion" than other
energy firms, since its assets are mostly outside
CNOOC had already tested the
waters with Nexen by buying Opti Canada in July
2011, which was a 35% partner in Nexen's $6.1
billion Long Lake oil sands project in northern
China's Sinopec was also in the
Canadian market this week, acquiring 49% of
Calgary-based Talisman Energy Inc's Talisman
Energy (UK) Ltd (TEUK), which operates in the
North Sea, for $1.5 billion.
acquisition will produce a joint venture in which
Sinopec will appoint key managerial personnel
while TEUK will operate the assets. China's
Sinopec Group, of which Sinopec is a subsidiary,
is an integrated energy and petrochemical company,
while Talisman is an upstream oil and gas company.
Talisman's current operations nearly span the
globe, stretching from North America to the North
Sea in one direction and to Southeast Asia in the
A Reuters analyst notes, concerning
these acquisitions but in particular regarding
CNOOC's purchase of Nexen, that "the critical
market intelligence on the supply situation in the
North Sea that CNOOC will obtain" may be one of
the most valuable results of the transaction.
North Sea Brent serves as an important benchmark
for global oil prices.
writes that CNOOC will be now able to play the
Brent crude oil futures market more efficiently,
in addition to having the right to participate in
discussions over how prices for various North Sea
benchmarks are calculated.
This means that
China is moving in the direction of ceasing to be
merely a price taker and will gain access to
information about what drives short-term price
shifts that influence its import costs. It may
thus also be able to influence the rules of the
futures price-setting game.
The deals are
also part of the Chinese firms' continuing their
worldwide search to purchase or otherwise acquire
energy technology. Important in this profile is
technology for exploiting shale-gas deposits, as
well as the shale-gas reserves themselves. For
this purpose, Chinese companies have focused on
North American firms, which have developed the
techniques perhaps furthest.
Chinese state-owned enterprises spent nearly $18
billion buying oil and gas companies around the
world, of which nearly one-third, or $5 billion,
was disbursed in Canada's resource sector.
Last October, Sinopec paid $2.2 billion in
its largest foreign acquisition of the year in
order to acquire the Canadian firm Daylight Energy
Ltd, thus gaining access to Canadian shale-gas
reserves. PetroChina had bid $5.4 billion for
Encana Corp's Cutbank Ridge gas assets but decided
in June 2011 to withdraw that offer after
negotiations with the company failed.
does not mean PetroChina lacks any interest.
Earlier this year, just before Canadian Prime
Minister Stephen Harper visited Beijing,
PetroChina completed acquisition of a 20% stake in
a British Columbia-based shale gas project of
Royal Dutch Shell Plc. No sum was specified for
the acquisition, but news reports cited a figure
of "more than $1 billion".
prime the way for the Nexen takeover by stressing
in February that Canada needs more foreign
investment to help develop its oil sands, and by
telling the Chinese that he wanted to sell more
oil to Chinese and Asian markets.
politicians have attributed this move towards
diversification as a result of President Barack
Obama's November 2011 postponement of a decision
on the construction of the Keystone Pipeline,
which would have fed multiple US refineries in the
Midwest and Texas Gulf Coast with product from
Alberta's Athabasca oil sands. The Canadian move
to build a pipeline from there westwards to
British Columbia's Pacific Ocean coast has gained
momentum since that time.
M Cutler (http://www.robertcutler.org),
educated at the Massachusetts Institute of
Technology and The University of Michigan, has
researched and taught at universities in the
United States, Canada, France, Switzerland, and
Russia. Now senior research fellow in the
Institute of European, Russian and Eurasian
Studies, Carleton University, Canada, he also
consults privately in a variety of fields.
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