Analysis: Cnooc sits while US ponders Nexen’s Gulf wells

Charlie Zhu and Michael Erman Hong Kong and New York

CNOOC’S purchase of Canadian energy producer Nexen may prove to be bittersweet if US regulators block the Chinese state-run oil company from taking over Nexen’s oilfields in the Gulf of Mexico.

The company won a major coup last week by securing Ottawa’s consent for the $15.1 billion (R130.6bn) deal, China’s largest ever overseas acquisition, but parts of the transaction must still be approved by the US government.

While the Gulf assets are just a fraction of Nexen’s reserve base and production wells, they would give Cnooc a foothold in the key deep-water oil province from which to acquire the technical know-how to drill in the contested South China Sea.

“The Nexen prize is the hi-tech ultra-deepwater drilling tech,” said a person familiar with the deal, adding that the Gulf of Mexico assets were “one of the key reasons that they are buying Nexen”.

Approval from Washington was important to Cnooc as it wanted to be endorsed as an acceptable operator in the US after American politicians blocked its high-profile bid for Unocal in 2005, another source said.

A rejection would not sink the entire deal; Cnooc was ready to buy Nexen excluding the US assets, sources said. But it would be a major blow to the company’s deep-water ambitions.

An acquisition of the Gulf of Mexico assets would make Cnooc the operator of deep-water producing assets for the first time.

Cnooc derives nearly all its domestic output from shallow waters. It has vowed to build deep-water capacity of 1 million barrels of oil equivalents a day by 2020, more than doubling its total output.

Buying Nexen, most of whose reserves are oil sands and shale gas in Canada and crude oil in the North Sea, would mark a “material entry into the Gulf of Mexico” and an “increase in access to deep-water expertise”, the company said in July.

A handful of US politicians have voiced concerns as the Committee on Foreign Investment in the US examines whether the deal presents any threats to national security. – Reuters


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