CNOOC to buy Nexen for $15 billion

In what's a pretty big surprise to me, CNOOC is in the process of buying Nexen for $15.1 billion, or at least trying to. Another article on this is here. Nexen is now apparently only the 12th largest Canadian oil company, producing 213,000 BOE's per day. The offer is for $27.50 per share, a significant premium on the price of $17.06 last Friday. 

Obviously this is a huge event for the Canadian oil industry - Nexen is one of only a handful of mid-sized Canadian oil companies operating overseas. As far as oil sands go it is less important - Nexen's Long Lake project has been something of a disappointment since the get go and its 7.23% interest in Syncrude isn't particularly big. However, at 48,000 barrels per day of oil sands production, Nexen is not an insignificant player. This article illustrates how this acquisition will more than double China's oil sands production from 33,000 barrels per day to about 81,000 barrels per day, or about 5% of the total.

Because Sinopec already owns 9% of Syncrude it does mean that 16.25% of Syncrude would be controlled by Chinese state controlled oil companies. 

Nexen is by far the largest Chinese takeover of an energy company in Canada so far, and possibly of any Canadian company. The deal will inevitably face a lot of criticism in Canada and the US, CNOOC being the same company the US government blocked from buying Unocal in 2005 for between $16 and $18 billion.

My opinion is that this is probably a good deal for Canada. To be totally blunt, there's a good chance CNOOC is overpaying for Nexen, which has seen rapidly falling profits, the significant loss of its Yemen concession and poor Long Lake performance leaving big question marks about its future. CNOOC says they will retain a lot of Nexen management and staff and make Calgary the CNOOC headquarters for North Central American operations. They will also continue Nexen's planned capital investments in Canada and abroad. And even with this acquisition, Chinese ownership of Canadian oil production is still small compared to domestic and US production. Shell alone has more Canadian production than all Chinese companies combined.

I am concerned that Chinese companies, and indeed Chinese government companies, are being given access to Canadian natural resources that would never be given to Western companies in China. Hopefully this deal and others like it will help open up Chinese markets to Canadian investors.