Chinese Energy Companies Shop in Canada
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The Chinese Dragon hungers for more energy. Yes, Chinese energy companies are at it again. They have renewed their shopping spree for energy assets around the globe this past week with a stop off in energy-rich Canada.
China's leading offshore energy company CNOOC Ltd. ADR (NYSE: CEO) launched the biggest potential overseas acquisition ever by a Chinese firm with its $18.2 billion takeover offer for Canada's Nexen (NYSE: NXY). Some may recall that this is the same company which failed in its $18.5 billion offer for US-based Unocal in 2005 thanks to intense political opposition.
Nexen has oil sands operations in Canada, produces shale gas in British Columbia, and has extensive exploration and production holdings in the Gulf of Mexico, the North Sea and offshore West Africa. Its energy assets are skewed 80 percent towards oil. The deal is expected to add about a fifth to CNOOC'S production and also increase its proven reserves by 30 percent or 900 million barrels of oil equivalent. And importantly, it adds exposure to technology and expertise in North American shale gas extraction, which CNOOC plans to take back to China to exploit the country's shale gas reserves.
This move was quickly followed by another Chinese bid for Canadian oil assets. China's biggest energy, refining and petrochemical company Sinopec or China Petroleum & Chemical Corp. (NYSE: SNP) offered $1.5 billion for a 49% stake in the North Sea assets of Canada's Talisman Energy (NYSE: TLM) which had found little success in the North Sea and was looking to lower its exposure there. The deal garners Sinopec roughly 35,000 barrels a day of oil equivalent.
These latest acquisitions once again highlight the ambitious goal to secure energy supplies for China held by its three leading energy companies – Sinopec, CNOOC and Petrochina Company Ltd. ADR (NYSE: PTR) – to expand their operations around the world in an effort to meet the country's burgeoning energy demand. Already this year, counting the latest deals, China's overseas energy acquisitions have totaled nearly $22 billion, more than double last year when energy deals totaled just over $10 billion.
China continues to perceive good buying opportunities are available right now on energy assets thanks to the current global economic downturn. Petrochina, which had a failed $5.5 billion joint venture with Canada's EnCana last year, was the first Chinese energy company to wholly a Canadian oil sands project – Athabasca Oil Sands.
The Nexen deal, in particular, shows that Chinese firms scared off by the failure of the Unocal deal are once again willing to launch a bid for full control of a company and not just settling for minority stakes. If the Nexen deal is approved in Canada, the UK and the United States, it may set off a feeding frenzy by these three firms and others like Sinochem for control of many other energy assets around the globe and especially in Canada.
The Nexen deal is likely to get approval in Canada because 72 percent of the company's assets are beyond Canadian borders and 89 percent of its cash flow occurs outside of Canada. But that does not mean it's a green light for China to buy up all of Canada's domestic energy industry. Canadian regulators must approve all foreign investments greater than C$330 million to see if the deals are in the country's “best interests”. It did turn a thumbs down in 2010 of BHP Billiton's $39 billion offer for fertilizer company, Potash Corp.
It would easily be within China's wherewithal to purchase most of Canada's publicly-traded energy companies. After all, thanks to beaten-down stock prices, it would only cost around $50 billion. But there is no way Canada's government will permit that. So the hungry Chinese Dragon will continue its search for energy assets anywhere it can find them around the globe.
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