SHANGHAI — China moved Monday toward its biggest overseas energy acquisition as offshore oil and gas giant CNOOC Ltd. announced an agreement to buy Canadian producer Nexen Inc. for $15.1 billion.
The deal faces scrutiny from the Canadian government, which has rejected foreign interest in the past over worries about the country’s natural resources industry.
CNOOC and other big state-owned Chinese energy companies have increased purchases of oil and gas assets in the Americas as part of a global strategy to gain access to resources needed to fuel China’s economy. The companies have moved more carefully since CNOOC tried seven years ago to buy Unocal but was rejected by U.S. lawmakers citing national security fears.
Total acquisitions by Chinese energy firms jumped from less than $2 billion between 2002 and 2003 to nearly $48 billion in 2009 and 2010, according to the International Energy Agency. More times than not, the companies are paying above the industry average to get those deals done.
Indeed, the offer of $27.50 a share is a premium of 60 percent to Nexen’s closing price Friday on the New York Stock Exchange. Shares rose 52 percent in $25.95. CNOOC expects the takeover to be finalized in the fourth quarter of this year, pending government approvals.
Calgary, Alberta-based Nexen operates in western Canada, the Gulf of Mexico, North Sea, Africa and the Middle East, with its biggest reserves in Canadian oil sands. It produced an average of 213,000 barrels of oil equivalent a day in the second quarter of this year.
The acquisition vastly expands CNOOC’s holdings in Canada, where the company has already invested about $2.8 billion. Besides oil sands, Nexen is also active in exploring for natural gas in shale rock formations. It owns about 300,000 acres of shale-gas blocks in the Horn River Basin in British Columbia.
The big Chinese oil companies are interested in developing shale-gas technology to find new supplies in China. In the U.S., where companies have solved the technological challenge of extracting natural gas from shale, a boom in production has meant cheap natural gas for homeowners, businesses, factories and utilities in the U.S.
Canada said the takeover offer will face a review by both its industry minister and the Competition Bureau, an independent law enforcement agency.
Industry Minister Christian Paradis said in a statement that he will review how the deal affects investment, employment, production and resource processing in Canada. He said the Competition Bureau will determine if the deal substantially lessens Canada’s ability to compete in global markets.
He did not give a timeline for the reviews.
It will be a tough call for the government, which has to decide whether the deal is a net benefit to Canada as a whole and not just to shareholders, said University of Calgary economist Jack Mintz.
“It’s going to be hugely political,” Mintz said. He said CNOOC prepared its bid with an eye to regulators by offering a 61 percent premium to shareholders and stressing that it intends to keep the Calgary-based management intact.
The last time Canada faced a similar challenge — when Australia-based BHP Billiton Ltd. launched a hostile takeover bid for Saskatchewan’s Potash Corp. — the government rejected the deal under pressure from Saskatchewan Premier Brad Wall and corporate players.
Wenran Jiang, a senior fellow at the Asia Pacific Foundation of Canada, said the Nexen deal is not the kind of surprise move that startled the U.S. with the Unocal takeover bid. “This one has been incremental and has been, of course, in an environment that’s most likely to go through,” Jiang said, noting that Beijing-Ottawa relations have been warming in recent years.
CNOOC said it plans to set up its regional headquarters in Calgary, increasing the company’s spending to develop the Canadian company’s energy reserves.
“This transaction will allow for significant investment in our business and opens the door to new opportunities for our employees,” Kevin Reinhart, interim CEO of Nexen, said in a statement.
The companies already had a strategic alliance that involved CNOOC investments in Nexen offshore wells in the Gulf of Mexico. Nexen says it produced 22,000 barrels of oil equivalent per day in the Gulf in 2011.
“The acquisition reflects our strong belief in Nexen’s rich and diverse portfolio of assets and world-class management and employees,” CNOOC Chairman Wang Yilin said in a statement.
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