Nexen deal promises CNOOC front-row seat in Canada – by Claudia Cattaneo (National Post – October 11, 2012)

The National Post is Canada’s second largest national paper.

As the debate intensifies over whether Ottawa should open the floodgates to Chinese investment in the Canadian oil and gas sector, some argue that Nexen Inc., the Calgary-based oil and gas producer targeted by CNOOC Ltd., isn’t worth protecting because its assets are predominantly based overseas.

Hopefully we aren’t that naive. Current production is only one metric of an oil and gas company’s worth. Just as important is where production will come from in the future — in Nexen’s case, the oil sands in Alberta and shale gas in British Columbia, as well as its management skills, technology, brand and platform, all of which are 100% Canadian. The famous line by petroleum geologist Wallace Pratt is worth repeating: “Oil is found in the minds of men.” Producing fields are the outcome.

The full range of Nexen’s Canadian value isn’t lost on the state-controlled Chinese company.

As CNOOC says on its website: “Canada is a prime location in the world with rich oil sands resources. Since oil sands are expected to become one of the new growth areas of oil and gas exploration and development in the future, the Company expects that making a foothold in the region could help to achieve sustainable growth.”

Nexen’s oil sands holdings, while underperformers at this point, include big oil-soaked reserves in Alberta supporting mining and thermal projects that are complementary to the ones CNOOC already has. If CNOOC succeeds in turning those reserves into production, the Chinese company stands to establish itself as one of Canada’s dominant producers with assets spanning Saskatchewan, Alberta and British Columbia.

It also gains a front-row seat to everything the Canadian energy sector does. There is no need for spying for that. The sector is transparent and collaborative, an outcome of the entrepreneurial culture that is under threat by the advance of state-owned enterprises like CNOOC.

Nexen’s holdings reach into all major aspects of the Canadian industry.

Nexen is a 65% owner and the operator of Long Lake, the oil sands project that began producing in 2008. CNOOC already owns the remaining 35% as a result of its purchase of bankrupt OPTI Canada Inc. last year.

Long Lake was yielding 33,800 barrels a day in July, has the capacity to ramp up to 72,000 b/d, and can grow to 230,000 b/d, according to Peters & Co. data. The project includes an upgrader that uses proprietary new technology to produce synthetic crude oil.

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