Cnooc Ltd. (883), China’s biggest offshore energy explorer, said it’s planning on getting approval for its $15.1 billion bid for Canada’s Nexen Inc. (NXY:US), even after Canada last week blocked a takeover bid for another oil company.
Cnooc expects the Nexen deal, China’s largest foreign takeover, to be completed within the year, Chief Financial Officer Zhong Hua told a conference call yesterday in Beijing. The company has prepared for all possible outcomes of the bid, he said without elaborating.
The Nexen deal was called into doubt after Canada rejected a C$5.2 billion ($5.23 billion) bid by Malaysia’s state oil firm, Petroliam Nasional Bhd., or Petronas, for Calgary-based Progress Energy Resources Corp. (PRQ) on the grounds that the deal wouldn’t bring a “net benefit” to the country.
“The odds still favor Cnooc winning approval,” said Gordon Kwan, Hong Kong-based head of energy research at Mirae Asset Securities Ltd. “Cnooc has promised to create additional jobs in the country and invest in building more energy infrastructures that could lead to higher export prices for Canada’s oil production.”
Cnooc shares rose 1.9 percent to HK$16.34 at 9:50 a.m. Hong Kong time. The benchmark Hang Seng Index gained 0.1 percent. Cnooc shares have gained 5.6 percent since it announced the Nexen acquisition on July 23. Nexen gained 0.2 percent to close at C$23.63 yesterday in Toronto.
Canada extended regulatory scrutiny of Cnooc’s bid for Nexen by 30 days on Oct. 11. The Nexen deal hinges in part on China’s willingness to approve Canadian investments there, a person with knowledge of the matter said this week.
Cnooc, which produced more than 80 percent of its oil from domestic fields in the third quarter, is seeking overseas assets to boost reserves, which may last for less than nine years at current production levels.
The company said yesterday total net production rose 9 percent to 87.8 million barrels of oil equivalent in the third quarter. It also said 2012 net production could be as much as 345 million barrels, 1.5 percent higher than previously estimated.
The increase in output still falls short of the 6 to 10 percent annual growth targeted by the company in the five years to 2015. A takeover of Nexen could add around 200,000 barrels a day, or more than 70 million barrels a year, to Cnooc’s output.
The Chinese government shut down Cnooc’s biggest offshore field, Penglai 19-3 in northern China’s Bohai Bay, in September 2011 after an oil spill. Cnooc said there is no clear timetable on when production can resume at the field, which was contributing around 7 percent of its output.
Improved third-quarter production was mainly attributable to “the contribution from the new projects and new development wells,” Cnooc said in a statement. Higher overseas output and “stable production” from other wells contributed to the increase, it said.
Although investors remain focused on the Nexen deal, Cnooc’s “strong organic production momentum” could increasingly come to the fore, Sanford C. Bernstein & Co.’s Hong Kong-based energy analysts Neil Beveridge, Ying Lou and Lu Gang said in a research note yesterday.
Cnooc finished test-drilling at a shale gas block in Anhui province in June, according a statement on its parent company’s website. The statement didn’t mention testing results.
China has yet to produce shale gas commercially as its explorers struggle to overcome a lack of domestic drilling expertise and difficult geology. The country aims to produce 6.5 billion cubic meters of the fuel annually by 2015 and ramp up output to between 60 billion and 100 billion by the end of 2020, the National Development and Reform Commission said on March 16.
China, the world’s biggest energy consumer, holds 25.08 trillion cubic meters of exploitable onshore shale gas reserves, the Ministry of Land and Resources said on March 1. That’s almost double the quantity available in the U.S., where shale has been heralded as having the potential to deliver energy independence to a nation still reliant on imports of foreign oil. The U.S. has 13.65 trillion cubic meters of technically recoverable gas from shale formations, according to its Energy Information Administration.
“Cnooc should pay more attention to developing domestic shale gas resources, especially if energy nationalism picks up steam worldwide,” said Wu Fei, a Hong Kong-based analyst at Bocom International. Such protectionism would make it “much harder for Chinese state-owned companies to buy assets overseas,” she said.
Beijing will conduct its second auction for shale gas blocks later today.
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