IN THE NEWS ~ Nexen gets friendly with China

Nexen gets friendly with China

State-owned firm will pay $15 billion for Calgary-based oil-and-gas company

Dina O'Meara, Postmedia News; Vancouver Sun (Page C2) With files from Canadian Press

   Nexen Inc. has agreed to a friendly $15-billion takeover bid by China's largest offshore oil producer in a deal which will see Calgary become the site of one of China National Offshore Oil Company's international headquarters.

   The oil and gas producer's board, which last year mulled over selling the company, threw their unanimous support behind the deal which see CNOOC increase investments in Nexen's existing Canadian and international assets.

   The bulk of Nexen's oil and gas production comes from North Sea operations in the United Kingdom.

   The Calgary-based company has been struggling with disappointing results from its Alberta oilsands project at Long Lake and last week announced a $120-million hit on second-quarter earnings on a dry well in the U.S. Gulf of Mexico.

   The transaction, if approved by Canada's investment and competition bureaus, will see CNOOC pay a 61-per-cent premium on Nexen's closing share price Friday in New York, $27.50 US per share.

   "As one of the largest oil and gas companies in the world, they have the balance sheet and the resources to help move our projects forward at a faster pace than we might have been able to do independently," said Kevin Reinhart, Nexen's interim chief executive, in a conference call Monday morning.

   "This transaction will enable us to accelerate our growth by leveraging CNOOC Limited's considerable financial resources, global network and operational expertise."

   The transaction also will establish Calgary as one of CNOOC's global headquarters, Reinhart said.

   "From here, we will continue to manage Nexen's global operations, plus their existing operations for North and Central America. This will result in a contribution of approximately $8 billion worth of their existing assets."

   Although CNOOC president Li Fan-rong said he intends to keep Nexen's management team and staff, Reinhart declined to comment on his future with the new company.

   The two producers were not strangers, as Nexen's original partner at Long Lake, Opti Canada, filed for court protection from creditors last summer and was later acquired by CNOOC for $2.1 billion.

   The Chinese company has made several other investments in Canadian companies over the past seven years, including buying stakes in MEG Energy Inc. and a 60-per-cent investment in Northern Cross (Yukon) Ltd.

   While the deal mainly targets Nex-en's offshore oil production, the Calgary-based company's assets include 300,000 hectares of shale-gas leases in the Horn River Basin of B.C.'s far north east, a region where Canadian companies are actively courting foreign partners to help develop the vast resource.

   PetroChina, in 2011, attempted to buy a $5.4-billion stake in Encana Corp.'s B.C. shale-gas holdings, but was unable to conclude the deal.

   However, the investments of Chinese-based entities in B.C.'s resource sector include China Investment Corp.'s $1.7-billion purchase of Teck Resources Ltd. shares in 2009 and development of the Gething coal project near Chetwynd by a consortium under the name Canadian Kailuan Dehua Mines Co.

   For state-owned CNOOC, Nexen's production base includes stakes in some of the world's most significant production regions, including the oil-sands and offshore North Sea, U.S. Gulf of Mexico and West Africa, said Fanrong.

   Federal Minister of Industry Christian Paradis confirmed Monday the proposed Chinese takeover would be scrutinized under the Investment Canada Act and by the Competition Bureau.

   Under the act, Paradis will review if the takeover will benefit or not Canada on an industrial, employment and competitive level.

   "Where an investment is subject to review under the act, my approval is required before implementation," Paradis said in a statement.

   "I approve applications where I am satisfied that a proposed investment is likely to be of net benefit to Canada."

   The federal NDP wants Ottawa to hold a full-fledged public review of the $15-billion takeover of Calgary-based Nexen Inc. by a Chinese state oil producer.

   The NDP's natural resources critic, Peter Julian, says his party will push for hearings through House of Commons committees that deal with industry, natural resources and the environment.

   Julian also wants Ottawa to come forward with more transparent rules for approving foreign investment.

   He says the Stephen Harper government has been promising improvements for two years, after its "secretive" rejection of the takeover of Potash Corp. by BHP Billiton.

   Julian says a combination of public hearings and more transparent investment review procedures would reveal whether the Nexen deal is truly good for the Canadian economy, the environment and communities.

   Analysts suggested that given Nex-en's relatively small Canadian asset base - in British Columbia's Horn River shale gas play, and its oilsands operations - foreign ownership rules likely would not be an issue.

   Nexen has faced numerous challenges over the past few years, most recently the troubled launch of its Long Lake oilsands project in northern Alberta.

   The project has yet to come close to its design capacity of 72,000 barrels of bitumen per day due to a number of operational glitches.

   Last week, the company reported second-quarter net income of $109 million, or 20 cents per share, missing analyst estimates by seven cents. The results were also down from $252 million, or 48 cents per share, a year earlier.

   In January, Nexen announced a major management shakeup, with Marvin Romanow leaving his post as CEO and Gary Nieuwenburg step-ping down as the executive vice-president of the company's Canadian operations.

   Reinhart was previously the company's chief financial officer. ILLUS: Jeff McIntosh, Cp / Nexen's interim chief executive Kevin Reinhart says the $15-billion deal with China National Offshore Oil Company will help the company move projects forward at a faster pace