Chinese state-owned oil and gas giant CNOOC said Monday it has agreed to buy Canada's Nexen for $15.1 billion as part of plans to grows its upstream footprint outside China.
Nexen's board has unanimously approved the deal which will complement CNOOC's large offshore production assets in China with production bases in Western Canada, the UK North Sea, the Gulf of Mexico and offshore Nigeria.
"This is a rare opportunity to acquire substantial reserves and create a major North and Central American base," CNOOC's chairman Wang Yilin said in a media conference call.
Under the agreement, CNOOC -- the listed arm of China National Offshore Oil Corp -- will pay $27.50 for each outstanding Nexen common share, representing a 61% premium to Friday's closing price on the New York Stock Exchange. Nexen is also listed in Toronto.
Nexen's current debt of about $4.3 billion will remain outstanding, and CNOOC said it plans to pay for the acquisition with existing cash resources and external financing.
This is CNOOC's largest attempted corporate acquisition since it mounted an unsuccessful $18.5 billion bid for Unocal in 2005.
The deal will add between 68 million-80 million barrels/year of oil equivalent or up to 24% to CNOOC's 2012 projected production of 330 million to 340 million boe. It will also boost CNOOC's proved reserves by 30% or 900 million boe, and its proved and probable reserves by 1.12 billion boe. The company will also gain Nexen's best estimate contingent resources of 5.6 billion boe predominantly in the Canadian oil sands.
The Nexen acquisition works out to $19.94/boe of proved reserves, $8.87/boe of proved and probable reserves and $88.60/boe of current estimated daily production, CNOOC said.
CEO Li Fanrong said over 90% of Nexen's assets were spread across OECD markets in North America, the Gulf of Mexico and Europe, which have politically stable environments that are friendly to foreign investment.
"Nexen has a huge reserve base and importantly, a strong and international operational team," he said, adding that the acquisition was in line with CNOOC's growth strategy of adding reserves and production and developing natural gas in a prudent financial manner.
Nexen reported average production of 207,000 boe/d in the second quarter of 2012.
About 44% of CNOOC's reserves will now come from overseas, compared with 29% previously. The company already has a joint venture with Chesapeake Energy in the Eagle Ford and other shale gas plays in the US. It also has 45% of Nigeria's offshore Akpo field in OML 130 operated by Total. In Argentina, it owns producing oil fields through its investment in Pan American Energy.
KEY UK OIL FIELD
CNOOC said it remains "committed" to all Nexen's upstream assets in the UK, including current investment plans for the North Sea's Buzzard and Golden Eagle oil fields.
Buzzard is the largest field on the UK Continental Shelf and produces around half of all crude oil going into the Forties crude blend, which is a key component of the BFOE North Sea crude benchmark.
The field encountered severe production issues last year, causing loading deferrals and helping to support Brent future prices. Output has recovered this year following the commissioning of a new platform at the field, despite a few glitches in the last few months, according to traders.
Earlier this year, the launch of a new oil trading venture between chemicals group Ineos and refiner PetroChina marked the first entry of a Chinese company into trading benchmark Dated Brent.
That followed PetroChina's acquisition of a stake in Ineos' Grangemouth refinery in Scotland and French Lavera refinery in July 2011.
The 210,000 b/d Grangemouth refinery is a large consumer of Forties crude as it sits on the Forties pipeline system and does not have to pay any freight costs when buying the grade, unlike other European refineries.
In the US, CNOOC said it will maintain investments in exploration and development in the Gulf of Mexico, where it will gain over 200 blocks. Li said entry into the Gulf will increase its access to deepwater expertise and give it more than 100 exploration prospects.
It will also expand its North American shale portfolio with over 300,000 net acres in Canada's Horn River, where Nexen is operator with 60% alongside Japan's Inpex. Nexen also has stakes in oil sands with the Long Lake -- where CNOOC is already 35% partner -- and Syncrude projects.
In Nigeria, Nexen also has a 20% stake in the Usan project, which is close to the Akpo field.
TORONTO LISTING
Last week, Nexen said it remained on track to meet its third and fourth quarter production targets, with Buzzard, Usan and Long Lake continuing to drive its guidance ranges of 160-190,000 boe/d and 205-240,000 boe/d respectively.
For the year, Nexen said it estimates average production of 185-220,000 boe/d.
Li said CNOOC will actively engage Washington as well as the governments in China and Canada to get the necessary approvals.
"We will work hard to increase dialog and communication with each government," he said.
CNOOC said it hopes to complete the transaction in the fourth quarter of 2012. It said the transaction may also need approval by the EU authorities.
As part of the deal, CNOOC has agreed to a termination payment of $425 million to Nexen if the transaction does not close due to Chinese regulatory reasons.
Nexen's common and preferred shareholders will be asked to vote on the transaction at a special meeting of Nexen and CNOOC has already obtained approval for the transaction from its majority stockholder, the company said.
Li also said the company is now considering a listing in Toronto.
"Following the deal, we will merge the Nexen assets into the company. We do not have any plans to split up any of our overseas divisions for a separate listing but we are currently exploring options for a listing in Toronto," he said.