Analysts: Canada/US Approvals Likely For CNOOC-Nexen Deal

-- CNOOC Takeover of Nexen Unlikely To Raise Old DivisionsnnBy Courtney TowernnOTTAWA (MNI) - Many Canadian and American oil industry analysts say it is likely that what would be the largest single acquisition by a Chinese oil major thus far, that of Canada's Nexen Inc. by Chinese National Offshore Oil Corporation (CNOOC) for US$15.1 billion, will receive approval by Canadian and United States authorities. nnCNOOC and Nexen announced Monday that Nexen's board has unanimously approved the takeover for US$27.50 per common share, a 61% premium over the closing price last Friday. Shareholders still must give approval. Nexen's share price immediately soared on the New York Stock Exchange, to US$25.90 by the close on Monday, up $8.84 or 51.82% from Friday's close. nn"We see this as a fair price," wrote Phil Skolnick, analyst in New York for the Canadian firm Canaccord Genuity Inc. "We don't expect there to be any regulatory issues as only 28% of NXY's production (Nexen is NXY on the NYSE) is in Canada," Skolnick wrote to clients. "Plus, there is an agreement to retain NXY's management team and for CNOOC to establish Calgary as its North and Central American headquarters. CNOOC also plans to list on the TSX (Toronto Stock Exchange)." nn"With respect to the U.S.," Skolnick said, "we do not see any issues, given this is mostly deepwater Gulf of Mexico prospects and NXY is only producing about 16 MBOE/d or 8% of total corporate production." nnBernstein Research, a major New York/Wall Street research firm, wrote that the acquisition would create "a truly Chinese global exploration and production company" with a combined output of 1.1 million barrels a day, 4 billion barrels of reserves, "and an asset

portfolio which is truly global." Nexen's assets are in the North Sea off Great Britain, in the Gulf of Mexico, off Nigeria, and in the Long Lake oil sands in Alberta, Canada, and, through that, a piece of the major Canadian oil firm Syncrude. Nexen also has shale gas operations in the province of British Columbia. nnSenior analyst Neil Beveridge wrote that "we do not foresee any problems" with regulatory approvals in Canada and the United States or the United Kingdom (re the North Sea)", adding that "completion of the acquisition is expected by Q4, 2012." That would only be within a very few months and Canadian government approval processes on large acquisitions normally have taken longer than that. nnCNOOC in 2005 withdrew a larger takeover bid for the California-based oil firm Unocal after a huge political backlash in the United States over a foreign state-owned enterprise taking over a major domestic commercial company. There has been a similar attitude among many in Canada, that a major resource firm could be operated for the non-commercial reasons of the purchasing enterprise's homeland. CNOOC made a point of outlining that it will be operated on a purely commercial basis, that Calgary would become the headquarters and locus of decision-making for North and Central America, that Nexen management would be retained, that CNOOC will apply to be listed on the Toronto Stock Exchange as it presently is in New York and Hong Kong. nn"While the failed Unocal deal still haunts CNOOC, we think it unlikely that either the US or Canadian governments will block this deal or that there will be a counter bid from a competing company," Beveridge wrote. nnJack Mintz, a prominent Canadian expert and director of the school

of public policy at the University of Calgary, Alberta, is not quite so sure. nn"The critical question is the effect on the Canadian oil industry if this is approved," Mintz said in an interview with MNI. His reasoning is that a flurry of Chinese and other takeovers of relatively large Canadian energy companies would be sure to follow. nn"This, if approved, would not be the only potential takeover in Canada of some of the relatively large oil and gas companies by Middle East or Chinese companies that have lots of capital," he said. "If this goes forward, it would be the green light to buy up other Canadian oil and gas companies." nnIn this particular case, Mintz argues, there also remains the idea of a state enterprise, "operating under different rules," owning a Canadian resource and not necessarily operating it in the best interests of stockholders or Canada. "All in all, it is "not an easy choice for the Government of Canada to reach," he said. nnPhil Flynn, senior analyst with Price Futures Group in New York, in an interview with MNI, said the acquisition appears to be "a good deal from China's viewpoint, and for Canada it would further firm up the China-Canada relationship." nnThis relationship has been improving since Prime Minister Stephen Harper began repeatedly saying Canada must broaden its energy exports from pretty well total reliance on the United States market, after President Barack Obama earlier this year blocked the Keystone XL pipeline of TransCanada Corporation from being built to carry Alberta oilsands product to U.S. refineries on the Gulf Coast. nnPresident Obama will revisit that decision after the November presidential election and after TransCanada alters the proposed pipeline route somewhat in the Nebraska region, but it has become a hot issue in U.S. politics. And Prime Minister Harper now has taken to citing China and other Asian countries as desired markets for resource exports. He has initiated a process of speeding up the review process for applications for pipelines. Several applications to his government for pipeline projects have been or are about to be made, to carry Alberta oil through the neighboring province of British Columbia to Pacific Ocean ports for shipment to China by tanker. nnTo analyst Flynn, all of this will revive debate in the United States. "It's going to become a very hot issue in the U.S. campaign," he said. nn** MNI Ottawa **