China's Oil Hunger Hits $15 Billion in Canada Amid U.S. Diet Deals

NEW YORK (TheStreet) -- If at first you don't succeed, head north to Canada.

After failing to buy Californian driller Unocal for nearly $20 billion in 2005, CNOOC (CEO), the Chinese state-backed oil giant, has agreed to buy Canada's Nexen (NXY) for $15.1 billion in the largest-ever Chinese acquisition of a foreign energy company.

CNOOC's $27.50 per share offer for Calgary-based Nexen comes at an over-60% premium to the company's Friday close and signals that the existing Chinese buying wave in niche drillers -- as well as a web of oil and gas joint ventures in North America -- may yet morph into mega-sized M&A. The deal highlights China and its state-owned oil giants' hunger for new oil and gas exploration assets amid a projected increase in the country's energy consumption. State-backed drillers like CNOOC, PetroChina (PTR) and Sinopec (SHI) have been acquiring oil and gas assets around the world, gaining access to many promising deepwater and shale drilling basins.

The national security argument against outright acquisitions of domestic energy companies forced the Chinese oil giants to be quiet and persistent buyers of North American oil and gas assets, cutting investment deals with some of the biggest independent oil and gas companies in the U.S., Chesapeake Energy (CHK) and Devon Energy (DVN), across the Canadian oil sands -- one of the most-desired regions for investment and where Nexen has exposure -- and with niche drillers in Canada like Daylight Energy, which was acquired by Sinopec last year.

Last year, CNOOC acquired Opti Canada -- Nexen's original oil sands partner -- for $2 billion.

Even though Monday's landmark bid for Nexen will face Canadian regulatory review, Chinese energy acquisitions may remain a more relevant prospect in north of the border, with joint ventures remaining the preferred way to gain access to U.S.-based asset sellers like Chesapeake Energy.

"There are lot more deals in Canada, and they don't translate to our public markets," says Subash Chandra, an oil and gas analyst with Jefferies. He notes that outright Chinese M&A tends to be "bottled up" in Canada, with few large-scale transactions in the U.S.

According to Bloomberg data, Chinese oil giants are the second-largest acquirer of oil assets, behind U.S. oil majors, cutting $35.6 billion of acquisitions last year. Notable Chinese deals include Sinopec's November acquisition of a 30% stake in Portuguese energy company Galp Energia's Brazilian subsidiary Petrogal Brasil, for over $5 billion, and a separate October acquisition of Daylight Energy, which holds 300,000 acres of shale oil and gas drilling assets, for $2.1 billion.

The interest in Canadian assets from Chinese state-run oil companies has been building. Last year, Petrochina signed a deal with Encana to buy assets in the Cutback region for $5 billion, a deal which would have been the largest-ever oil and gas acquisition in Canada by a Chinese company. That deal fell apart for undisclosed reasons.

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