China continues to boost its oil and gas assets with Talisman and Nexen bids

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Despite all the market turmoil over the last few days as a result of the fears over Spanish and Italian sovereign debt, all appears well in the world of oil and gas mergers and acquisitions with the announcement of two deals yesterday involving North Sea assets. What’s more they are both at significant premiums for existing share holders. Confirmation yet again that companies like Bowleven, Chariot Oil and Gas and Xcite Energy will continue to be attractive with their assets trading at large discounts to industry merger/takeover multiples. Any hint of drilling success or confirmation of oil field commerciality is likely to bring on more cash rich predators.

Oil & Gas UK said Monday’s deals reflected “the renewed attractiveness of our province as a place to invest”. It added: “Given the new ownership, we would expect investment activity to remain high.”

China’s largest energy and petrochemical group, Sinopec made a $1.5 billion deal with Calgary based but Toronto listed Talisman Energy to acquire a 49 per cent stake in the company’s North Sea assets. Talisman currently focuses on the UK, North America and Asia but it decided to sell a proportion of its North Sea business to strengthen its balance sheet in the face of falling shale gas prices in the US.

Sinopec’s deal will allow more investment in North Sea oil assets, adding to field life and also allow greater exploration. Good news for oil and gas production for the UK. Talisman’s North Sea assets produced 71,500 boepd last year.

CNOOC (China National Offshore Oil Corporation), swooped on Candian listed, Nexen with a $15.1 billion bid. Nexen has oil sand and shale gas reserves in Canada as well as assets in the North Sea, Nigeria and United States (Gulf of Mexico). CNOOC is the third-largest oil company in China after CNPC (parent company of PetroChina), and China Petrochemical Corporation (parent company of Sinopec).

Nexen is second largest oil producer in the UK North Sea. Its net UK production of both oil and gas is 114,000 barrels of oil equivalent per day (boepd).

CNOOC’s cash offer of $27.50 a share represents a 61 per cent premium to Nexen’s closing price last week and is potentially controverisal given that it may raise political opposition in Canada with concerns about the Chinese buying such a significant flagship asset. An $18.5 billion deal to buy US company, Unocal, in 2005 fell apart after political intervention.

Canadian opposition to Chinese acquisitions may be less than the U.S. but BHP Billiton investors will remember the regulatory obstacles put in the way of the $39 billion bid for Potash Corp. of Saskatchewan in 2010. CNOOC made a $2 billion purchase of Alberta oil sands developer OPTI Canada in July 2011 after the company’s bankruptcy. Canada’s trade minister, Ed Fast, said he expected “reciprocity” with China in investment and trade.

Contrarian Investor UK

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