Cnooc Draws Significant Line in Oil Sands

On Monday two big companies you may not have heard of sealed a deal. Cnooc, one of China's largest oil companies, plans to buy Nexen of Canada. The deal may not have hit most people's radar, but it is hugely significant.

Cnooc, whose biggest shareholder is the Chinese government, is planning to pay $18.2bn, including debt, for Nexen. If the deal goes through, it will be the biggest Chinese acquisition of an overseas listed company. And it is a prime example not only of China's desire to buy up resources companies around the world, but of its rising corporate activity abroad. In terms of cross-border M&A this year, China lags behind only the US and Japan, according to Dealogic.

The deal also marks Cnooc's first attempt to buy a North American company since 2005, when it tried to take over Unocal, the US-based energy company, for $18.5bn. Then, amid a storm of political protest, it was rudely rebuffed. Now, it has structured the deal in such a way that it hopes to appease the many regulators it will face – in the US and UK as well as Canada, given Nexen's geographical spread of assets.

Cnooc says it will list its shares in Toronto, and will make Calgary its North American hub. It has also tested the water – completing a number of US investments, including two large shale deals with Chesapeake Energy, without meeting political or regulatory resistance. This is not the only sign of Cnooc's, and China's, growing confidence in getting deals done. Rather than taking a stake in its target, the preferred route for many Chinese companies in recent years after the bruising lessons of the Unocal debacle, Cnooc has opted to go for a full takeover. To smooth the path, it has made sure that the bid is the opposite of hostile – mainly by offering a very generous price.

One of the reasons Cnooc is so keen to get its hands on Nexen is the company's ownership of important "unconventional" energy assets – specifically in Canada's oil sands. These cover an area the size of Florida and are estimated to hold oil reserves second only to Saudi Arabia's. The Nexen deal would be by far Cnooc's biggest move into the oil sands sector – and it would join other Chinese companies such as PetroChina and Sinopec in building a significant presence there.

The deal, of course, is far from done. Nexen's shares have risen 50 per cent since the deal was announced, but they are still below Cnooc's offer price of C$27.50 – presumably because of concerns regulators won't let the deal through. These are reasonable – on Thursday, Chuck Schumer, US Democratic senator, asked the Obama administration to block the deal.

But the very fact that such a deal is on the table speaks volumes, both about the growing international heft of Chinese companies, and the transformation under way in the energy industry.