CNOOC Ltd, China's top offshore oil producer, has agreed to acquire Canada's Nexen Inc for about $15.1 billion in the biggest overseas acquisition by a Chinese company in a move that will test Canada's foreign ownership rules.

"The aggregate value of the consideration of the proposed acquisition is approximately $15.1 billion (approximately HK$117.2 billion), and is to be payable in cash," CNOOC said in a statement filed with the Hong Kong stock exchange on Monday.

"The current indebtedness of Nexen of approximately $4.3 billion will remain outstanding. The company intends to fund the proposed acquisition through existing cash resources and external financing."

The all-cash deal is worth $27.50 per Nexen share, a 66-percent premium to the average price of the stock over the past 20 days. Nexen closed at $17.06 on last Friday.

Nexen will give Cnooc assets in Canada, the UK, West Africa and the Gulf of Mexico that produced 207,000 barrels a day in the second quarter, boosting the mainland company's output by about 20 percent. The deal is a second attempt to buy a large North American oil and gas producer after political opposition blocked the acquisition of Unocal Corp in 2005.

"Cnooc did a nice job in adding oil reserves at less than $20 a barrel," said Shi Yan, a Shanghai-based energy analyst at UOB-Kay Hian Ltd. "It's really a good time to buy assets while crude prices are low and energy firms shed values in stock markets."

"The acquisition of Nexen will expand the group's overseas business and resource base in order to deliver long-term sustainable growth," Cnooc said in the statement. "Nexen will complement the group's large offshore production footprint in China."

The mainland company is paying 8.84 times earnings before interest and tax for Nexen, compared with the median of 33.06 of 10 comparable deals, according to data compiled by Bloomberg.

The Beijing-based company will add 900 million barrels of oil equivalent reserves at $19.94 per barrel through the deal, according to a document posted to the company's website.

The Nexen deal is not the first takeover by a Chinese firm in the overseas oil sector, but it is the first transaction of its size, expected to test Canadian foreign ownership rules.

Cnooc failed in its previous audacious attempt to acquire US oil firm Unocal for $18.5 billion in 2005 after the offer invited unprecedented political opposition in the US on worry of a threat to American security.

Reuters - Bloomberg

(HK Edition 07/24/2012 page2)