Analysis: Nexen's U.S. Gulf oilfields key to China's deepwater ambitions

Thu Dec 13, 2012 3:02am EST
 

By Charlie Zhu and Michael Erman

HONG KONG/NEW YORK (Reuters) - CNOOC Ltd's purchase of Canadian energy producer Nexen Inc may prove to be bittersweet if U.S. regulators block the Chinese state-run oil company from taking over Nexen's oilfields in the Gulf of Mexico.

CNOOC won a major coup last week by securing Ottawa's consent for the $15.1 billion deal, China's largest ever overseas acquisition, but the company is still waiting for approval from the U.S. government.

While the Gulf assets are just a fraction of Nexen's reserve base and production, they would give CNOOC a foothold in the world's premier deepwater oil province from which to acquire the technical know-how to drill in the contested South China Sea.

"The Nexen prize is the hi-tech ultra-deepwater drilling tech," said a person familiar with CNOOC's business strategy, adding that the Gulf of Mexico assets were "one of the key reasons that they are buying Nexen".

Approval from Washington is also important to CNOOC as it wants to be endorsed as an acceptable operator in the United States after American politicians blocked its high-profile bid for Unocal in 2005, according to another source.

A rejection would not sink the entire deal -- CNOOC is ready to buy Nexen excluding the U.S. assets, people familiar with the situation told Reuters. But it would be a major blow to CNOOC's deepwater ambitions.

An acquisition of the Gulf of Mexico assets would make CNOOC the operator of deepwater producing assets for the first time, giving it the prized opportunity to grasp the expertise it desperately needs to realize its production target.

China, the world's largest energy user, is already relying on imports for more than half of its oil needs. The country has long hoped to expand deepwater exploration in the South China Sea as onshore production growth sags.   Continued...

 
A woman walks into the Nexen building in downtown Calgary, Alberta, July 23, 2012. REUTERS/Todd Korol