Chinese oil giant purchasing Canada's Nexen for US$15B
Published Monday, July 23, 2012 7:01AM EDT
Last Updated Monday, July 23, 2012 9:41PM EDT
Alberta oil and gas producer Nexen Inc. has agreed to a takeover by the China National Offshore Oil Company worth US$15.1 billion, the company announced Monday.
The company will pay $27.50 for every common Nexen share, a price that represents a 61 per cent premium on Friday's closing price on the New York Stock Exchange.
After news of the deal broke, Nexen shares rose on the Toronto Stock Exchange by more than 52 per cent, to $26.35 in afternoon trading.
"The acquisition reflects our strong belief in Nexen's rich and diverse portfolio of assets and world-class management and employees,” said Wang Yilin, Chairman of CNOOC Limited, in a statement. “This is an exciting opportunity for us to build on our existing joint venture relationship with Nexen in Canada."
The chair of Nexen's board, Barry Jackson, said the board unanimously agreed to the purchase proposal and said the transaction "delivers significant and immediate value to Nexen shareholder."
"The Nexen Board is unanimous in its view that the transaction is in the best interest of Nexen and recommends shareholders vote in favor of the transaction," Jackson said in a statement.
Kevin Reinhart, Nexen's interim CEO, said CNOOC is one of the largest players in the field, worldwide, and the purchase will allow for "significant investment in our business and opens the door to new opportunities for our employees."
As part of the deal, CNOOC said it plans to open a head office in Calgary that will oversee its operations in North America and Central America, and intends to list its shares on the Toronto Stock Exchange.
CNOOC also said it plans to keep Nexen's current staff and management.
"We intend to be a local company as much as a global one," CNOOC chief executive Li Fanrong told reporters on a conference call Monday.
The deal will require Prime Minister Stephen Harper to indicate formally how foreign investment fits into the government’s energy strategy, which has of late been predicated on diversifying markets for Canadian oil. Hanging in the balance is the controversial Northern Gateway pipeline project, which, if approved, would carry Alberta bitumen to the B.C. Coast to be shipped to Asian markets.
On a conference call with reporters Monday, Reinhart acknowledged that the federal government was notified ahead of the deal’s announcement, but would not speak to Ottawa’s reaction.
The deal remains subject to shareholder, regulatory and government approval. The federal industry minister must determine whether it is a net benefit to Canada under the Investment Canada Act. The Competition Bureau will also take a look at the terms.
If all goes according to plan, the deal is expected to be completed by the end of 2012.
"We will work together to file the necessary applications and to work with the various governments to ensure they have all the information they need to make the right decision,” Reinhart said.
NDP Natural resources critic Peter Julian said the industry minister’s review, as well as that by the Competition Bureau, are insufficient to determine whether the deal will benefit Canada. Julian called for a public review via a House of Commons committee.
In Alberta, Energy Minister Ken Hughes hailed the deal, saying foreign investment, “benefits Albertans, and Canadians,” and makes Canadian businesses more competitive.
"The oilsands have already drawn investment from China, the United States, Norway, Japan, South Korea, France, Thailand and the United Kingdom,” Hughes said. “The result is jobs for Canadians here and abroad, and competitive products on an international market."
The deal was announced hours before the B.C. government unveiled the terms it says must be met to ensure it does not block the Northern Gateway pipeline by way of withholding permits or blocking access to the province’s power supply.
The demands included that the project pass a National Energy Board review, and that the province be given a fair share of the project’s economic benefits.
Prior to the agreement to purchase Nexen, the Chinese oil giant had investments worth $2.8 billion in Canada, including stakes in MEG Energy Inc., OPTI Canada Inc., and Northern Cross (Yukon) Limited.
Nexen had been the subject of takeover rumours for a long time, and the deal has not surprised experts.
"I'm not sure why it took so long," Lanny Pendill, an energy analyst with Edward Jones in St. Louis, told The Canadian Press.
"I think the fact that the sector has really been beaten down with all of the macro concerns about economic growth and we've seen oil prices slip back a little here, from CNOOC's perspective it was probably now or never."
Last week, Nexen reported that its second-quarter profits tumbled 57 per cent after it took over an unsuccessful well in the Gulf of Mexico. It also lost out on a lucrative contract in Yemen last year.
The company has also struggled to bring its Long Lake oilsands project in northern Alberta to full capacity after its 2008 launch.