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

Monday's deal could lead to a new round of regulatory hurdles for Chinese operators looking to gain control of U.S. assets -- Nexen owns assets in the Gulf of Mexico -- after regulatory authorities and Congress blocked CNOOC's $18.5 billion bid for Unocal in 2005. Still, there are those who believe the political resistance to outright acquisitions of North American assets by Chinese energy companies never made sense.

"The Unocal bid was derailed by negative press and myopic rhetoric by a few ignorant politicians," says Fadel Gheit an oil and gas analyst with Oppenheimer & Co., who notes that in the aftermath of the deal breakup, the country has remained a large U.S. energy investor. "CNOOC has invested in unconventional JVs with US independents, which benefit both and should increase our domestic production," adds Gheit. The analyst believes Chinese firms should be able to invest more freely in the U.S. since oil is a global business.

Even if outright M&A may remain politically challenging in the U.S., Chinese players like CNOOC, Sinopec and PetroChina will continue to test the waters. "CNOOC is sitting on a pile of cash and has been aggressively seeking energy acquisitions for the last five years, reflecting China's hunger for energy and oil in particular, and I expect this trend to continue," says Gheit.

In November Bloomberg reported that Marathon Oil (MRO - Get Report) was in talks to sell its Angolan offshore operations to Sinopec and other Asian buyers for $800 million. Reports also indicate that Marathon may look to sell 30% of a joint venture in its Gulf of Mexico deepwater assets for $1 billion to Asian buyers as part of the Houston -based company's announced plans of oil asset sales up to $3 billion.

If the deals were to go through, it wouldn't be Marathon's first sale to Chinese buyers. In 2009, state-backed oil companies Sinopec and CNOOC (CEO) bought a 20% stake in a promising Angolan deepwater oil prospects from Marathon for $1.3 billion.

The political climate in Canada remains a wildcard for the Nexen deal. While Chinese state-run oil companies have had success in Canadian M&A in recent years, Canadian regulators blocked BHP Billiton's (BHP) $38.6 billion bid for Saskatchewan based fertilizer company Potash (POT) in 2010, a high-profile political end -- and M&A failure -- for what was slated to be a huge foreign acquisition of a Canadian company.

The key to the Nexen deal not suffering the same fate may be its far-flung assets.

"We don't expect there to be any regulatory issues as only 28% of Nexen's production is in Canada. Plus there is an agreement to retain NXY's management team and for CNOOC to establish Calgary as its North and Central American headquarters. CNOOC also plans to list on the Toronto Stock Exchange," writes Cannacord Genuity's Skolnick in a Monday note to clients.

A logical counter bidder would be Total, according to the analyst, however, "We don't expect Total, or really anyone else, to try to compete with China," the analyst wrote.

-- Written by Antoine Gara in New York.
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