Home » Black Swans » Will CNOOC capture Nexen and build global oil dominance? $CEO $NXY

Will CNOOC capture Nexen and build global oil dominance? $CEO $NXY

China National Offshore Oil Corporation

China National Offshore Oil Corporation (Photo credit: Wikipedia)

CNOOC (NYSE:CEO) is attempting to swallow up whole Canadian controlled but NYSE traded Nexen (NYSE:NXY) CNOOC which is structured to do the bidding of the political apparatus in Beijing has offered a pretty penny in deed to acquire Nexen.

For those of you who do not know it both are in the energy business. CNOOC is a politically owned state sponsored entity. Nexen is a free market off-spring who is well positioned in Canada’s oil sands. The oil sands have as much oil as Saudi Arabia, but it is very difficult to extract.

The take over offer is subject to Canadian federal approval. So far it’s not been a yes. Many whispers about a nuanced response etc etc. The problem is CNOOC is state sponsored. So calls for free markets while being made are not logical. CNOOC is using a politicians math not business math. They can easily come in and out bid on the basis of strategic vision untempered by a requirement to make profits and pay bills as they come due.

If it was another energy company offering a rich take-over premium than let markets rule. But this is not a market play. So stock arbitrageurs. If you are holding Nexen expecting the take-over to go down with a rich premium you may be running out of oxygen as you hold your breath.

This deal is not politically wise. The current Canadian federal government has not spent much time working the China card. Beijing could have pre-lobbied the Canadians before they launched a cowboy style take-over.

Canada will accept Chinese investment into the oil sands and elsewhere. They just cannot let the Chinese have the keys to the front door. Don’t worry China. Canada will sell oil to both the USA and China just as soon as the XL pipeline is approved in Washington. Romney is just itching to get this one going. Obama will abandon the environmentalists to generate construction jobs and improve energy security.

So it will not be Nexen. But it will be oil sands investments. All we have to do is wait until the US Presidential election is over and then announce a decision.

George Gutowski writes from a caveat emptor perspective. Follow him on twitter@financialskepti

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