China’s CNOOC Swallows Canadian Oil and Gas Company

China’s largest offshore oil and gas company, CNOOC Ltd. (NYSE: CEO), has agreed to acquire Canadian oil and gas firm Nexen Inc. (NYSE: NXY) for $15.1 billion in cash, or $27.50 per share. The price represents a premium of 61% to Nexen’s closing price on Friday. The deal is expected close in the fourth quarter of this year.

Nexen currently owns 65% of the Long Lake oil sands project, while CNOOC owns the other 35%. Nexen also has leases in the U.S. Gulf of Mexico, the North Sea and onshore Canada. In 2011, Nexen’s production totaled about 207,000 barrels of oil equivalent per day.

CNOOC tried in 2005 to acquire U.S. oil and gas company Unocal for $18.5 billion, but withdrew its offer after political opposition to the deal surfaced. Unocal’s assets were eventually acquired by Chevron Corp. (NYSE: CVX). Rare earths miner Molycorp Inc. (NYSE: MCP) also acquired its Mountain Pass mine from Unocal. The company is a subsidiary of China National Offshore Oil Corp., which is majority owned by the Chinese government.

Under the terms of today’s deal, Nexen may entertain, but not solicit, competing offers and CNOOC retains the right to match any other offer. If Nexen accepts another offer, CNOOC will receive a breakup fee of $425 million. If the Chinese government should reject the deal, CNOOC will pay Nexen a termination fee of $425 million.

Canada has welcomed investment by China’s state-controlled energy companies in the past, but this is the first really big takeover of a large Canadian energy firm. Canada’s politicians could balk at this deal, just as U.S. politicians balked at CNOOC’s attempt to acquire Unocal. At the very least, expect a spirited discussion of the issue over the next few months.

Paul Ausick