State oil company CNOOC plans to buy Canadian rival Nexen Inc for $15.1 billion, a deal which if successful would be China's biggest foreign corporate takeover and a test of Ottawa's tolerance of outside interest in its resources.
Offshore producer CNOOC said it would pay $27.50 cash per share, a 61 percent premium to Nexen's closing price in New York on Friday.
The move is the most ambitious foray by resource-hungry China into North American energy since a 2005 attempt to buy US-based Unocal for $18.5 billion was thwarted by a political backlash there.
CNOOC has only nine years worth of reserves based on its current production — one of the lowest ratios among major oil companies worldwide — and said the deal would increase its proven reserves by 30 percent.
“CNOOC has been seeking overseas acquisitions, as the domestic reserves are limited. But there has been many limits, things like foreign companies (being) reluctant to sell, price too high. This deal would be quite a success,” said Yan Shi, oil analyst at brokerage UOB Kay Hian in Shanghai.
The move was quickly followed by another Chinese move on Canadian oil assets, as Sinopec Corp. said it would buy 49 percent of Talisman Energy's UK unit for $1.5 billion.
CNOOC already has a number of co-operation deals with Nexen, which operates in many of the world's most significant producing regions, including Western Canada, the UK's North Sea, the Gulf of Mexico and offshore Nigeria.
Nexen, whose assets include conventional oil and gas, oil sands and shale gas and which recently underwent a management shakeup, has been seen for some time by investment bankers as a potential target.
A CNOOC statement said the Nexen board unanimously approved the deal.
CNOOC made its first tentative Canadian investment in 2005, paying C$122 million ($120.8 million) for a 16.7 percent share of the then-private oil sand developer MEG Energy Corp.
It completed a C$2.1 billion acquisition of Opti Canada Ltd. in November, giving the Chinese company its second stake in a Canadian oil sands company.
The deals in Canada have not yet awakened the political opposition that killed CNOOC'S $18.5 billion Unocal bid.
But Canada can review and block any foreign investments worth more than C$330 million if it thinks a deal is not in Canada's best interests. It most noticeably exercised that right in 2010 when it blocked Anglo-Australian miner BHP Billiton's $39 billion hostile takeover of Potash Corp., the world's top fertilzer producer.
Analyst Shi said the price for the deal seemed reasonable.
“Assets in Canada are generally about more than 20 US dollars per barrel. The cost in the deal is less than 20 dollars per barrel,” Shi said.
Chinese companies have been among the most aggressive in targeting assets around the globe to help feed demand in the world's second-biggest economy.
According to Thomson Reuters data, the takeover would be bigger than any foreign deal completed to date by a Chinese company.
Buying Nexen also would make CNOOC the operator of the Buzzard oilfield, the largest in the UK and the biggest contributor to Forties Blend crude.
Forties is the largest of the four North Sea crude oils that form the Brent oil benchmark, and the crude that usually sets the value of dated Brent, the benchmark for pricing more than half of the world's oil.
BMO Capital Markets and Citigroup Global Markets Inc advised CNOOC, while Nexen was advised by Goldman Sachs and RBC Capital Markets.
CNOOC said Nexen's debts of about $4.3 billion would remain outstanding and it hoped to complete the deal by the fourth quarter of 2012.
It also said it would seek a listing for CNOOC shares on the Toronto Stock Exchange and would make Calgary its North American headquarters.