Insight: China's CNOOC scoped Nexen, partnered, then pounced

Wed Jul 25, 2012 2:06am EDT
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By David Ljunggren, Denny Thomas and Michael Erman

(Reuters) - When Canada's Nexen Inc fired its CEO in January, an oil giant on the other side of the world sprang into action.

Nexen had been on the wish list of Chinese state oil company CNOOC Ltd for five years. The removal of CEO Marvin Romanow was just the opening the Chinese needed to make their move, according to sources familiar with the situation.

By the Chinese New Year later that month, CNOOC had hired BMO Capital Markets and Citigroup Inc as financial advisers, according to these sources. That kicked off negotiations culminating on Monday with a deal to buy Nexen for $15.1 billion, the biggest foreign acquisition ever by a Chinese company.

The agreement is a triumph for China's third-largest oil company, which had to abandon its $18.5 billion bid for California-based Unocal in 2005 because of bitter opposition on sovereignty grounds from U.S. lawmakers, and shows how far the Chinese have come as dealmakers on the global stage.

It also feeds China's demand for resources to sustain an economy that despite six quarters of deceleration still grew at 7.6 percent in the second quarter, and will give it a platform from which to grow further in Canada's energy sector.

Interviews with people familiar with the Nexen deal reveal CNOOC heeded lessons from the Unocal debacle. It also closely studied Australian miner BHP Billiton Ltd's failed $39 billion bid to buy fertilizer maker Potash Corp in 2010 - a deal killed by the Canadian government - as it methodically went about laying the groundwork for the Nexen deal.

Among its tactics was the establishment of a joint venture so it could become familiar with the target and its assets, as well as the way of doing business in North America. Importantly, it quickly started building relationships with governments in the countries where Nexen operates, including Canada, the United States and Britain, the sources said.

CNOOC, which offered a 61 percent premium to Nexen's Friday stock price, already has interests in Canada - including oil sands operations in Alberta, and shale gas in British Columbia - as well as extensive exploration and production holdings in the North Sea, Gulf of Mexico and offshore West Africa. Nexen, Canada's sixth-largest independent oil explorer and producer, also operates in the Gulf of Mexico, Colombia, the North Sea, Yemen and offshore West Africa.   Continued...

A woman walks past the entrance of the headquarters of China National Offshore Oil Corp (CNOOC) in Beijing in this September 23, 2010 file photograph. REUTERS/Petar Kujundzic/Files