The image halts the reader in his tracks: this month’s issue of Canadian Business magazine features on its cover page a white Stetson hat superimposed on an image of Communist China founder Mao Zedong, suggesting that the country he founded to shield behind a "bamboo curtain" is now wealthy and acquisitive enough to purchase one of this country’s strongest resource companies for a price in the billions. It is a harbinger of things to come, a sign that the world has changed drastically in just a few short years.
This summer, Alberta-based Nexen Inc. (T.NXY) was made the target of a takeover by China National Offshore Oil Corporation (CNOOC), a deal in excess of $15.1 billion, or what amounted to a 61% premium to Nexen’s sale price, or about $27.50 U.S. a share.
The deal is expected to close before the calendar year is out, and, if given the go-ahead – and, for sure, there are still numerous hurdles to clear – would be China’s largest foreign deal. The purchase would also make CNOOC the operator of a major oilsands project for the very first time, enabling Beijing to tap massive unconventional oil reserves at home.
"This transaction delivers significant and immediate value to Nexen shareholders,” Chairman Barry Jackson told reporters. “The Nexen board is unanimous in its view that the transaction is in the best interest of Nexen and recommends shareholders vote in favour of the transaction."
"China estimates", according to a piece on the deal this week in the National Post, "the oil-soaked sands it sits on could hold as much as 14.5 billion barrels, which would be double the country’s proven oil reserves. It also estimates it has huge reserves of heavy oil and shale oil — oil trapped in shale formations." It is particularly important, given the billions Beijing has to house, heat, help transport, etc.
Headquartered in Calgary, Nexen is an upstream oil and gas company developing energy resources in the North Sea off the United Kingdom, offshore West Africa, the Gulf of Mexico and, of course, Western Canada. Nexen has three principal businesses: conventional oil and gas, oil sands and shale gas.
One of the company’s most lucrative properties, the Long Lake project in the Athabasca Oil Sands, was initiated in 2001, in order to develop the Long Lake site using steam-assisted gravity drainage and the OrCrude process for on-site upgrading. Nexen maintains a 65% interest in all project production and operating costs, CNOOC footing the other 35%. Production capacity at Long Lake is 72,000 barrels of bitumen per day which, when upgraded, is capable of generating approximately 58,500 barrels per day (37,000 bbls/d net to Nexen). External estimates place the proved reserves at the Long Lake site at 318 million cubic metres.
As mentioned, Nexen's Board is, well, on board with the proposed transaction, as are officials at CNOOC. But the politicians are not so sure. The latest comment came from federal Industry Minister Christian Paradis, who told reporters Wednesday his office is under no deadline pressure to accept or reject the proposed friendly takeover, adding the process needs a formal proposal from CNOOC before a review can begin by the ministry and the federal Competition Bureau.
Paradis concluded once the official proposal is received by his department the offer will be scrutinized to make sure there is a "net benefit" for Canada (mind you, the Harper government has nixed only two foreign deals since first taking office in 2006, more notably the attempt by Anglo-Australian miner BHP Billiton for Potash Corp. in 2010).
There’s also doubt from south of our borders that the proposed buy is a good idea. Because Nexen has holdings in the Gulf of Mexico, the acquisition would come under the review authority of the Committee on Foreign Investment in the United States (CFIUS) under Treasury Secretary Tim Geithner. What’s more, several key senators are iffy about the deal, one basing his opposition on "China’s closed economy, its prohibition on direct, full investment in Chinese business operations by U.S. firms, and its blatant disregard to U.S. intellectual property rights".
Given the opposition the deal faces, and the time the whole business should take to unravel, it promises to be a wild ride for Nexen stockholders. The energy company climbed to a 52-week peak in late July of $26.70, while the gully of $14.20. Late Thursday, the stock faded 19 cents, or 0.7%, from the day before, to a reading of $25.50.
Related Stories
