China National Offshore Oil Corp. (CNOOC), China’s biggest offshore oil and gas company, has reached an agreement to purchase Canada-based Nexen Inc. for $15.1 billion, the biggest overseas deal by any Chinese company in history.
The Chinese company will pay $27.50 per share of Nexen, which is a 60 percent premium over the company’s closing price on July 20.
The CNOOC deal will likely be contentious for Canada, as regulators will have to approve the transaction. Nexen has oil and gas assets in Nigeria and the North Sea, as well as the Gulf of Mexico.
MarketWatch commented that “It’s awkward because it Canada prefers to view China as a vast market for its surplus oil while China clearly wants to be more than just a buyer of oil. It also wants to own the oil fields.”
It will be interesting to see how the Canadian government handles the deal, if it is approved by Nexen shareholders this week.
The deal has similarities to CNOOC’s first attempt to purchase a large North American asset—its 2005 $18.5 billion bid to buy California-based Unocal. At the time, the deal was roundly criticized in Washington by lawmakers and regulators as CNOOC is state-owned by the Chinese Communist Party.
Whether the Canadian government signs off on the deal depends on how it views Nexen’s assets—most of which are overseas. Nexen has a market capitalization of $9 billion, which ranks it far behind some of Canada’s biggest oil producers such as Suncor Energy Inc. or Imperial Oil Ltd.
If we want to look at a precedent, the Canadian government last year nixed a proposed deal by BHP Billiton to purchase fertilizer giant Potash Corp. worth nearly $39 billion. BHP is based in Australia and the UK, and not Communist China.
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