Cnooc Ltd. (883) said it may extend beyond March the deadline for its purchase of Nexen Inc. (NXY:US), China’s largest foreign takeover, even as the company expects production growth to come from overseas.
China’s biggest offshore energy explorer, which received the Canadian government’s approval to buy Nexen for $15.1 billion in December, said it plans to increase crude and natural gas production by as much as 2.1 percent this year, after meeting its 2012 output target.
Cnooc’s purchase of Nexen is awaiting U.S. regulatory clearance and the company may have to extend the deadline for closing the deal if approvals aren’t obtained in time, Chief Financial Officer Zhong Hua said in Hong Kong yesterday. The explorer will focus its capital expenditure on developing domestic production, which will be little changed in 2013, he said.
Cnooc’s stalled domestic output growth follows Chinese oil companies spending $25 billion in 2012 to acquire oil and gas assets globally to meet the demands of the world’s largest energy consumer, according to data compiled by Bloomberg. Cnooc’s growth in output, domestic and foreign, declined to about 3.6 percent in 2012 from a peak of 40 percent in 2010.
“For Cnooc, China offshore production growth has been flat for the third year in a row and has lagged the management’s target of 4 percent to 5 percent annual growth,” said Sonia Song, a Hong Kong-based analyst at Nomura Holdings Inc. who has a neutral rating on Cnooc shares. “This year offshore production may be even lower.”
Cnooc dropped as much as 3.3 percent, the lowest intraday level in almost three months, to HK$15.86 in Hong Kong and traded 2.8 percent lower as of 10:58 a.m. local time. The city’s benchmark Hang Seng Index declined 0.6 percent.
Nexen and its oil sands assets will add about 23 percent to Cnooc’s production this year and very little to earnings per share, said James Hubbard, Hong Kong-based head of Asia oil and gas research at Macquarie Group Ltd., who has an outperform rating on Cnooc shares.
“Oil sands is a low margin business and requires high capital expenditure,” Nomura’s Song said. “Cnooc wants to build a long-term oil resource with Nexen, but the valuations were probably too generous.”
Cnooc originally hoped the deal would close by Dec. 31 and has since extended the deadline to March 2. The company is confident all regulatory approvals will be obtained by the first quarter of 2013, Zhong said.
The unit of state-owned China National Offshore Oil Corp. plans to produce between 338 million and 348 million barrels of oil equivalent, the company said yesterday in a statement to the Hong Kong stock exchange. New projects off the Chinese coast helped produce about 341 million to 343 million barrels last year, meeting the 335 million to 345 million barrel forecast announced in October.
Cnooc may have entered a multiyear growth cycle, Neil Beveridge, Ying Lou and Lu Wang, Hong Kong-based analysts at Sanford C. Bernstein & Co., wrote in a research note yesterday.
“While near-term production is likely to slip, the medium- term growth outlook remains unchanged,” the analysts said. “Cnooc has an exceptionally strong growth pipeline ahead, with 24 projects under development both in offshore China and overseas and 10 projects this year.”
Bernstein analysts expected Cnooc to post 15 percent production growth in 2014 and 2015.
The company’s 2013 target includes production from the shuttered Penglai 19-3 oilfield in northern China’s Bohai Bay. The country’s largest offshore field has been closed since Sept. 2011 after an oil spill and Cnooc is waiting for government approval to restart.
Ten new offshore projects in China will come on-stream in 2013 and capital spending will rise to between $12 billion and $14 billion, the company said in the statement. Cnooc will maintain its 6 percent to 10 percent production growth target for 2011 to 2015, it said.
Cnooc’s relatively modest output target in 2013 showed that “declines of the existing fields are so severe that they completely offset the contributions from the new, smaller fields,” said Gordon Kwan, the head of research at Mirae Asset Securities Hong Kong Ltd., in an e-mailed research note.
“This might explain the urgency to acquire and bolt on Nexen to fill this year’s performance growth gap and ensure the firm’s 2011-2015 growth target can still be achieved,” Kwan said.
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