Chinese state-run company CNOOC has agreed to a $15.1 billion deal to acquire Canadian oil producer Nexen in the biggest overseas energy buyout by a Chinese company.
CNOOC will take over Nexen's shale gas operations in British Colombia and its oil sands projects in Alberta as well as its production and exploration ventures in the North Sea, the Gulf of Mexico and off the west coast of Africa.
The Chinese company says it will keep on all current Nexen employees, and will make Canada its headquarters for all energy ventures in the west.
The move by CNOOC, China's third-largest oil and natural gas company, is the nation’s most ambitious attempt to buy into the North American energy industry in years. The last big push was in 2005, when China had its $18.5 billion bid for US oil company Unocal rejected due to political opposition to the takeover.
China has been one of the most aggressive movers in targeting overseas assets to satisfy its expanding appetite for energy. This recent announcement coincides with a $1.5 billion deal for China Petrochemical Corp to take a 49% stake in Talisman Energy, based in Calgary, central Canada.
Current domestic oil production in China is limited, which has resulted in CNOOC only managing to accumulate around 9 years of reserves – one of the worst ratios among major international oil companies.
The Nexen deal would be an important win for CNOOC as it would boost reserves by as much as 30%.
Across the Pacific, Canadian Prime Minister Stephen Harper has been seeking to encourage China to commit bigger investments into its energy industry. These latest deals show significant headway has been made in convincing Canada's lawmakers of the merits of such action.
CNOOC Chief Executive Li Fanrong says the deal could provide obvious benefits for Canada's energy industry: "For Canada, this agreement provides a stable source of investment for the many projects that Nexen operates, including the exploitation of bitumen in Alberta."
The acquisition must still be approved by Canada's Industry Ministry, which will make its decision based on whether the deal would create a net benefit at home. CNOOC's promise to base all its western operations in Canada, along with the fact that most of Nexen's operations are located abroad, will be key factors for the ministry.
Key Statistics - Oil & Gas In China (source: Taiyou Research)
- China is expected to account for more than 37% of demand for oil in the Asia-Pacific region by 2015.
- China’s oil and gas consumption is currently increasing at an annual rate of 7.5%, which means domestic suppliers will need to significantly boost production to meet demand.
- Chinese oil production is expected to contract by around 8.5% between 2010 and 2020. Crude volumes are likely to soar in 2013, before slowing again through 2020.