CNOOC-Nexen deal likely to close by year end after Canada approval: analysts
Singapore (Platts)--10Dec2012/440 am EST/940 GMT
With approval from the Canadian government granted on Friday, China
National Offshore Oil Corp. has crossed the biggest hurdle to its $15.1
billion takeover bid for Nexen and the deal should close by the end of the
year, analysts said in research note on Monday.
CNOOC will now need approvals from the US and UK governments, but Canada
was the key risk as Nexen's assets in the US are not material and the British
government is investor-friendly, Macquarie Research analysts James Hubbard
and Aditya Suresh said in the note.
"The US approval process may well prove noisy and emotive in the press
but ultimately the US assets account for only 5% of our Nexen valuation,"
Fei Wu at BOCOM International said Nexen's US assets in the Gulf of
Mexico accounts for only 3.4% of its proved reserves and 7.1% of current
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CNOOC and Nexen refiled for US approval to the Committee on Foreign
Investment on November 24, meaning the next potential approval date could be
In addition to its troubled Long Lake oil sands project in Alberta and
major shale gas interests in British Columbia, Nexen has operations in the
Gulf of Mexico, the North Sea and offshore West Africa.
Even if CNOOC was forced to divest its Gulf of Mexico assets, damage
would be limited, Wu said in a research note on Monday, estimating CNOOC's
proved reserves addition would fall from 28% to 27% while production would
fall by four percentage points to between 17% and 20% growth in projected
output this year.
The Canadian government announced late Friday approval of CNOOC's
takeover bid, along with Malaysian state company Petronas' $6.06 billion
acquisition of Progress Energy Resources. Both deals were announced in the
second quarter of this year.
Canadian Prime Minister Stephen Harper said any future bids for foreign
state-control of the oil sands would only be granted in "exceptional
"Although Canada said that further such takeovers will not likely gain
approval, we believe the country will not completely close the door to
beneficial foreign investments as the capex required to commercialize oil
sands continues to surprise on the upside," Gordon Kwan, head of energy
research at Mirae Asset Management, said in a note on Monday.
"We believe the government officials' statements were made to appease
the many politicians who had voiced concerns recently about the CNOOC and
Petronas (Malaysia) deals," the note added.
Kwan said approval for both deals will lead to more foreign takeover
proposals for North American assets, sustaining the energy mergers and
acquisitions boom in the long term.
In a statement to the Toronto Stock Exchange on Friday night, Nexen said
no further approvals are required in Canada.
"This is an important milestone in the process and confirms our belief
that this transaction provides a number of significant benefits to Canada and
to Nexen," said Kevin Reinhart, Nexen's interim president and CEO. "We remain
focused on working with CNOOC to bring this transaction to a close."
The European Commission also approved the deal on Friday, shortly before
Canada announced its decision.
In a statement on its website on Saturday, CNOOC Chairman Wang Yilin
said Industry Canada's approval signals that the deal will be of great value
and bring long-term economic benefit to Canada, Alberta and Calgary.
The company said that as part of its commitment to the government, it
agreed to establish its North American headquarters in Calgary to oversee
assets worth about $8 billion, retain Nexen's management and employees,
invest significant funds for the long-term development of Canada's oil and
gas resources, list its shares on the Toronto Stock Exchange, continue to
contribute to research in oil sands at the University of Alberta and submit
an annual social responsibility report to Industry Canada.
These were conditions that CNOOC had already said it would undertake
when the deal for Nexen was first announced in July.
With the Nexen acquisition and its own organic growth, CNOOC's estimated
production is likely to rise by 33%, while earnings should see a 19% boost in
2013 Credit Suisse said on Monday. In addition, the company would gain
expertise from Nexen's employees skilled in shale gas and deepwater
exploration, which could augment its domestic plays in China, Credit Suisse
Progress and Petronas said in a joint statement on Sunday that the
approval marked a vital step in their plans to develop an LNG export business
in British Columbia.
They said growth plans include three major investment components: the
Pacific Northwest LNG project involves the processing of 2 Bcf/d of LNG for
export, continued upstream development of natural gas in the Montney region
and the eventual installation of a pipeline to export gas from the fields to
the LNG export facility.
All approvals for Petronas-Progress have now been obtained and the deal
is scheduled to be completed on December 12, the statement said.
--Song Yen Ling, email@example.com
--Edited by E Shailaja Nair, firstname.lastname@example.org