China’s CNOOC to acquire Canada-based Nexen for $15.1B; offshore oil and gas, oil sands, and shale gas
CNOOC Limited—China’s largest producer of offshore crude oil and natural gas and one of the largest independent oil and gas exploration and production companies in the world—is acquiring all of the Common Shares of Canada-based energy company Nexen Inc. for US$15.1 billion cash. The price represents a premium of 61% relative to the closing price of the Common Shares on the NYSE on 20 July 2012 and a premium of 66% relative to the volume-weighted average price of the Common Shares over the 20 trading days ending 20 July 2012. Nexen’s current debt of approximately US$4.3 billion will remain outstanding.
Nexen is focused on three core businesses: conventional offshore oil and gas; oil sands; and shale gas:
Conventional oil and gas. Nexen has major positions in three of the world’s most significant conventional basins: the UK North Sea, Offshore West Africa and the deep-water Gulf of Mexico. It is the second-largest oil producer in the UK North Sea.
Oil sands: Nexen has an interest in more than 656,000 undeveloped acres (gross) in the Athabasca oil sands region, with net proved plus probable reserves of 1,350 million barrel and approximately 4 billion barrels of contingent recoverable oil sands resource.
Nexen is a 65% owner and the operator of Long Lake, an integrated steam assisted gravity drainage (SAGD) and upgrading operation. Nexen also has a 7.23% interest in the Syncrude Canada oil sands mining and upgrading facility.
Shale gas: Shale gas is expected to be a source of growth for Nexen in the future. With 300,000 acres shale gas lands in the Horn River, Cordova and Liard basins in northeastern British Columbia, it has enough resources to double Nexen’s proved reserves. Nexen has a joint venture shale gas project in Poland and is exploring for shale gas in Colombia.
The two companies has finalized a joint venture for deepwater exploration in the Gulf of Mexico in 2011. (Earlier post.)
Nexen had average production of 207 mboe/d (after royalties) in Q2 2012. In accordance with SEC rules, Nexen had 900 mmboe of proved reserves and 1,122 mmboe of probable reserves as of December 31, 2011. In addition, as of 31 December 31, Nexen had best estimate contingent resources of 5.6 billion boe in accordance with Canadian National Instrument 51-101, predominantly in the Canadian oil sands.
As of 31 December 2011, CNOOC owned net proved reserves of approximately 3.19 billion boe, and its net production averaged 909,000 boe/d.
The acquisition thus expands CNOOC’s overseas businesses and resource base. Nexen will complement CNOOC’s large offshore production footprint in China and extend CNOOC’s global presence with a focused on conventional oil and gas, oil sands and shale gas. The transaction, which will be completed by way of a plan of arrangement, is expected to close in the fourth quarter of 2012.
The transaction will be funded by CNOOC Limited’s existing cash resources and external financing.
CNOOC Limited has been a significant investor in Canada since 2005, with total capital invested of C$2.8 billion. These investments include a stake in MEG Energy Inc., OPTI Canada Inc. (Nexen’s partner in the Long Lake steam assisted gravity drainage production facilities (SAGD) and Upgrader), and a 60% interest in Northern Cross (Yukon) Limited.
In connection with this transaction, CNOOC Limited intends to carry out a number of plans including the following:
Following completion of the transaction, CNOOC Limited plans to establish Calgary as the head office of its North and Central American operations. This head office will be responsible for operating and growing Nexen’s assets in North and South America, Europe and West Africa and CNOOC Limited’s portfolio in Canada, the U.S. and Central America. CNOOC Limited intends to retain Nexen’s current management team and employees.
CNOOC Limited will implement and enhance Nexen’s current planned capital expenditure program, thereby investing significant capital in Canada and in Nexen’s other international assets. CNOOC Limited brings greater financial capacity to better realize the full potential of Nexen’s significant resource base.
CNOOC Limited will continue to support oil sands research at Alberta universities and participate in the Canada’s Oil Sands Innovation Alliance (COSIA).
CNOOC Limited is committed to Nexen’s assets in the UK, including current investment plans for the maintenance and development of all producing, development and exploration assets, including Buzzard and Golden Eagle, with opportunities for continued cooperation with UK-based suppliers.
In the US, investments in exploration and development in the Gulf of Mexico will be maintained.
In Nigeria, CNOOC Limited will continue Nexen’s partnership in the Usan project and maintain its active development, appraisal and exploration drilling campaign on Nexen’s Nigerian acreage.
In all of these offshore areas, CNOOC Limited brings to the Nexen team supporting expertise based on its 30 year track record of offshore exploration and development. Nexen’s other international activities will be maintained as planned.