China's International Energy Ambitions (Dispatch)
Video Transcript:
Video Transcript
China National Offshore Oil Corp. (CNOOC) issued a takeover bid on July 23 for the Canadian energy company Nexen for over $15 billion. This bid, if approved, will help to push CNOOC farther onto the international stage as the Chinese government aggressively pushes its energy companies to seek international assets.
CNOOC's bid for Nexen marks the biggest foreign acquisition yet for a Chinese company. In the bid, CNOOC has agreed to buy all of Nexen's outstanding common shares for $27.50 per share -- a 62 percent premium over what the stock was trading at before the announcement. In China's search for energy assets, it's shown itself to be rather price insensitive in its bid to secure energy assets across the globe.
Further, assets in Canada are particularly enticing due to the legal and political environment that is much friendlier to Chinese investments than in the United States. In this particular bid, there are several factors that make it a focus for CNOOC. First, CNOOC and China in general are looking to diversify their energy assets across the globe. The purchase of Nexen would give them deepwater assets in both the Gulf of Mexico and the North Sea, expanding their global reach.
Second, these deepwater assets are particularly important for the technology that CNOOC wants in order to become a bigger global player competing with the likes of ExxonMobil and Shell. Further, as CNOOC becomes an effective tool for the government's South China Sea ambitions, it needs to continue to improve and expand its deepwater technology to stake its territorial claims through aggressive exploration and drilling.
Third, in addition to the deepwater technology, Nexen has assets in oil sands and shale investments that are becoming an interest to Chinese state-owned energy companies. North American companies have extractive technology that China needs to exploit its shale gas reserves domestically.
Finally, another enticement for investments in the North Sea is its importance as a benchmark for global oil prices, giving China the possibility of becoming more of a price setter than a price taker in the future.
All of these points factor into the attractiveness of Nexen, not only for CNOOC that wants to boost its bottom line, but also for the Chinese government that wants to secure energy assets. Backed by the state, China's energy companies have an advantage over a lot of the large global oil and gas corporations, and as we saw during the height of the global economic crisis, Chinese companies are more than willing to spend top dollar to snatch up assets when other global players hesitate. Although, even with the financial backing of the state, CNOOC faces hurdles with the Nexen acquisition, including operational challenges that have plagued Nexen with some of its more advanced projects.
Nevertheless, as the prospects for the global economy remain weak, and even as China faces a weakening economy domestically, the government remains focused on its international energy strategy to diversify its portfolio overseas. Taking advantage of the global economic weakness, they can become more competitive internationally while hedging against weaknesses at home, parking their cash and investments in assets that are more secure than domestic options, which also promise a more secure future for its energy needs.
