(BN) Cnooc Buys Nexen for in China’s Top Overseas Acquisition

Bloomberg News reports: 

Cnooc Buys Nexen for in China's Top Overseas Acquisition

Cnooc Ltd. (883) agreed to pay $15.1 billion in cash to acquire Canada's Nexen Inc. (NXY) in the biggest overseas takeover by a Chinese company.

China's largest offshore oil and gas explorer is paying $27.50 for each common share, a premium of 61 percent to Calgary-based Nexen's closing price on July 20, according to its statement to the Hong Kong stock exchange today. Nexen's board recommended the deal to its shareholders.

Nexen will give Cnooc assets in Canada, the U.K., West Africa and the Gulf of Mexico that produced 207,000 barrels a day in the second quarter, boosting the Chinese company's output by about 20 percent. The deal is a second attempt to buy a North American oil and gas producer after political opposition blocked Cnooc's $19 billion for bid 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."

Cnooc will offer to buy Nexen's preferred shares and the Canadian company's debt of $4.3 billion will remain in place, the statment said. Beijing-based Cnooc will pay for the acquisition using existing cash funds and external financing. The agreement includes a breakup fee of $425 million if the deal is terminated under certain circumstances.

Sustainable Growth

"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."

Nexen's market value has plunged 60 percent from a high of C$43.45 in June 2008 as its prices fell for natural gas, which accounts for about 20 percent of output. Production growth has also been slower than the company expected because of setbacks at projects in Canada's oil sands and North Sea.

Cnooc 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. Cnooc plans to boost output by as much as 2.7 percent this year to the equivalent of as much as 930,000 barrels of oil a day.

In a separate deal, China Petrochemical Corp., or Sinopec Group, will acquire a 49 percent stake in the U.K. unit of Canada's Talisman Energy Inc. (TLM) for $1.5 billion, the Beijing based company said in a statement today.

Fertile Area

Canada has become a fertile area for Chinese oil producers seeking to add oil and gas reserves to meet demand in the world's largest energy-consuming country. After today's deal, Chinese companies will have spent $49 billion on buying Canadian fields and oil companies, according to Bloomberg data. In contrast, they've laid down just $3.5 billion in U.S. acquisitions.

Today's deal will cement Cnooc's position in Canada's oil sands after last year's $2.4 purchase of OPTI Canada Inc., Nexen's partner in Alberta's Long Lake project. After today's deal, Cnooc will own all of Long Lake, which aims to produce 72,000 barrels a day using steam to heat the tar-like oil out of the sands.

The Canadian government reviews any foreign takeover worth more than C$330 million ($325 million) and is in the process of raising that threshold to an enterprise value of at least C$1 billion over the next four years, Industry Minister Christian Paradis said in May.

Stephen Harper

Prime Minister Stephen Harper is seeking to assure foreign companies the country is open to investment amid criticism the takeover review system is unpredictable. Harper in 2010 rejected a $40 billion hostile takeover bid for Potash Corp. of Saskatchewan Inc. by BHP Billiton Ltd., saying it didn't provide a net benefit to the country. It was only the second rejection of a foreign takeover in Canada in 25 years.

Margaux Stastny, director of communications for Canadian Industry Minister Paradis, couldn't be reached for comment before regular business hours.

Bank of Montreal and Citigroup Inc. provided financial advice to Cnooc, while Stikeman Elliott LLP and Davis Polk & Wardwell LLP acted as legal counsel. Nexen's financial advisers are Goldman Sachs Group Inc. and Royal Bank of Canada, while its legal advisers are Blake Cassels & Graydon LLP and Paul Weiss Rifkind Wharton and Garrison LLP. Richard A. Shaw Professional Corp. and Burnet, Duckworth & Palmer LLP also served as legal advisers to Nexen's board.

To contact the reporter on this story: Aibing Guo in Hong Kong at aguo10@bloomberg.net

To contact the editor responsible for this story: Hwee Ann Tan at hatan@bloomberg.net

Gold Investment Statistics and Commentary Q2 2012 World #Gold Council

Gold Investment Statistics and Commentary Q2 2012 World #Gold Council 

Quarterly statistics commentary Q2 2012 We have just published our commentary on gold's price performance in various currencies, its volatility statistics and correlation to other assets in the quarter. It provides macroeconomic context to the investment statistics published at the end of each quarter and highlights emerging themes relevant to gold's future development.   Review: key macroeconomic themes during Q2 2012   Gold prices declined in most currencies during the second quarter with the exception of the euro, Swiss franc and Indian rupee, in part due to a strong US dollar. Despite a 3.8% decline in Q2 to US$1,598.50/oz on the London PM fix, gold was up 4.4% during the first half of the year. Volatility remained elevated amidst a busy event-risk period. However, gold generally outperformed risk assets. Global inflation eases but underlying trends supportive for gold: A substantial drop in energy and some agricultural commodities during the period has eased inflation pressures in many parts of the world and put downward pressure on gold prices. Reassessing "risk-free" assets: Even assets traditionally considered safe are under pressure. German Bunds interest rates climbed in June. The Swiss franc, yen and US Treasuries are also facing issues – challenging their role as assets of last resort. Despite pressures on the price of gold, its lack of credit risk, its liquidity and hedging characteristics has made gold an attractive vehicle for long-term wealth preservation. Correlation between gold and risk assets approaches long-term averages: Gold's correlation to equities and other risk assets fell towards long-run average levels in Q2 helping portfolio diversification. Gold's increased correlation to equities in Q1 was an indirect effect related to a weaker global economy coupled with a stronger US dollar.   Outlook: emerging macroeconomic themes in H2 2012 Deflationary concerns in some countries provide room for further fiscal and monetary stimulus. This may lead to a further debasement of currencies through unconventional monetary policy and an increased risk of future inflation. These factors should provide support for future gold investment. The underlying structural issues that affect the euro zone remain unresolved, despite advances in the formation of more comprehensive burden-sharing mechanisms. In such an environment of uncertainty and higher market volatility, gold will continue to be an asset that investors use to diversify risk and preserve capital. The flight to the US dollar as a safe-haven in the first half of 2012 could be reversed. The US debt ceiling debate in Q3 and federal elections in November, followed by the necessity to confront a US$1.3tn budget deficit will prove challenging to the US dollar. With most currencies under pressure in one form or another, gold is likely to provide a hedging mechanism for investors. MORE...

Mining companies must comply with Glacier Law-Argentine Supreme Court - POLITICAL ECONOMY - Mineweb.com Mineweb

From BMO: More noise out on Argentina overnight, with reports that courts have rejected Barrick’s (ABX CN, Outperform, $65 price target) glacier injunction, which could impact its mine at Pascua-Lama.   ABX has responded saying “Our activities do not take place on glaciers and Barrick remains in full compliance with existing environmental approvals, including provincial glacier protection legislation”.

This document discusses ABX’s requirements with regards to avoiding certain areas of glaciers: http://www.barrick.com/Theme/Barrick/files/responsibility-reports/2010/Pascua-Lama.pdf.

Our analysts view is that Pascua is fully permitted for construction and mining and that the glacial issue was considered in the granting of those permits.   However, these are different times, and Argentinian policy as of late has not exactly been mining friendly.

Pascua-Lama is 11.7% of our NPV.  We have start up mid 2013.  Capex of $3.4B from 2012 going forward (in addition to $2.7B already spent) and sustaining of $2.1B

ABX could be weak on these headlines, and with uncertainty still over the potential for negative cost and guidance revisions and other assets, we would avoid this stock in the near-term.  Silver Wheaton (SLW CN, Outperform, $47.36 target) may also come under pressure, as it has the royalty on the Pascua-Lama, but they are guaranteed payments from ABX regardless of whether or not the mine enters production, so weakness in SLW could present a buying opportunity. 

See the article on Mineweb:  Mining companies must comply with Glacier Law-Argentine Supreme Court - POLITICAL ECONOMY - Mineweb.com Mineweb