Is CNOOC Buying Into The Gulf of Mexico?

Nexen’s Aspen platform in the Gulf of Mexico. Photo courtesy of Nexen Inc.

While Cnooc Ltd.’s (CEO, 0883.HK) $15.1-billion takeover offer for Nexen Inc. (NXY.T, NXY) would give the Chinese energy producer operational control of a significant Canadian oil-sands-field operator, the deal also would catapult it into the driver’s seat in some of the Western world’s richest frontiers, from the U.S. Gulf of Mexico to the North Sea.

The deal still faces a potentially lengthy regulatory and government review in Canada, and it also could attract scrutiny in the U.S., where Nexen is among the largest lease holders in the Gulf of Mexico.

But if the deal is consummated, Cnooc would be the first Chinese company to control and operate offshore-oil fields in the Gulf region, a strategically and environmentally sensitive area that is the source of roughly one-quarter of U.S. crude-oil production.

It is a prize Beijing’s Cnooc coveted as far back as 2005, when it launched an ultimately unsuccessful bid to buy U.S. oil-production-and-refining company Unocal Corp., which was later swallowed up by Chevron Corp. (CVX).

Energy-consulting firm Wood Mackenzie pegs the value of Nexen’s Gulf of Mexico operations at about 10% of the total value of Cnooc’s offer price–about $1.6 billion. Currently, most of its participation is that of a passive partner with international oil companies such as Royal Dutch Shell PLC (RDSA.LN, RDSA, RDSB.LN, RDSB), Chevron, Norway’s Statoil ASA (STL.OS, STO) and BHP Billiton (BHP.AU, BHP, BBL, BLT.LN).

But Cnooc executives aim to use those assets as a platform for further deals, according to people familiar with the situation.

Roughly half of its Gulf assets, by value, are located in the so-called Jurassic play–an emerging trend of deep-water discoveries. Nexen has worked together with Shell. Currently a frontier area, it could be a significant source of production for the central Gulf of Mexico, said Norm Pokutylowicz, a Wood Mackenzie analyst.

“By acquiring Nexen, Cnooc gets a foothold in the Jurassic development, which has a lot of upside potential,” Mr. Pokutylowicz said.

Another big chunk of Nexen’s Gulf assets–roughly a third of its holdings by value–lies in the Knotty Head development. Nexen operates its interests there–meaning it makes the project’s big decisions on where to drill and how much oil to pump. It also takes on the lion’s share of responsibility if anything goes wrong.

Nexen also is an active explorer in the Gulf, with stakes in over 200 blocks, mostly in the central Gulf of Mexico, which is where most of the Gulf’s infrastructure lies.

Cnooc would also get Nexen’s operations in the North Sea, which include the Buzzard oil platform. It produced 85,000 barrels of oil a day from the North Sea last year. The Golden Eagle platform under development in the North Sea is also expected to add 26,000 barrels of oil a day to Nexen’s operations in 2014.

Nexen’s Usan offshore-oil platform off the West coast of Africa also began production this year. The project, a joint venture with France’s Total SA (FP.FR, TOT), will provide up to 36,000 barrels of oil a day to Nexen.

Nexen also has shale-gas properties under development in British Columbia, Colombia and Poland.

By Angel Gonzalez and Edward Welsch (c) 2012 Dow Jones & Company, Inc.

–Ryan Dezember contributed to this article.

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