Cnooc’s Nexen bid caught up on prospective resources
Bid gives U.S. 'leverage to exert upon China,' U.S. Senator says
Nexen Inc.’s Long Lake oil sands property may hold up to 900 million barrels of oil equivalent of proved reserves, plus another 5.6 billion barrels of less certain contingent resources, but it is a tract of largely prospective exploration blocks in the Gulf of Mexico that has so far played an outsize role in Cnooc Ltd.’s blockbuster bid for the struggling Calgary oil company.
In a letter submitted today to United States Treasury Secretary Timothy Geithner, New York Senator Charles Schumer says approval of the proposed takeover should be withheld “until China’s government has made tangible, enforceable commitments to ensure U.S. companies reciprocal treatment.”
Geithner chairs the Committee on Foreign Investment in the United States, or CFIUS, which reviews foreign takeovers of U.S. assets.
Kara Alaimo, a spokesperson for the international affairs branch of the U.S. Treasury, said via e-mail that, by law, the department “does not comment on information relating to specific CFIUS cases, including whether or not certain parties have filed notices for review.”
Schumer said in a statement that Cnooc’s bid for Nexen gives the U.S. a “rare” degree of “leverage to exert upon China.”
“We should not let this window of opportunity pass us by. At some point, we have to put our foot down over China’s refusal to play by the rules of free trade,” he said.
The extent of that leverage includes 65 million barrels of probable reserves and another 50 million barrels of prospective contingent resources Nexen claims in the Gulf of Mexico, located in a subsea structure called Appomattox.
Nexen holds a 20 per cent interest in the structure, according to public documents. Another five appraisal targets are located in a play called Norphlet. There’s also Kakuna, a dry hole Nexen spent $120 million drilling but abandoned this past May when it failed to yield commercial volumes of hydrocarbons. (Cnooc, via a joint venture struck last year, had a 20 per cent interest in the prospect).
Declines in the U.S. Gulf of Mexico contributed to a 25 per cent drop in Nexen’s North American production in the second quarter compared to the same period in 2011, according to public documents.
The company has also set aside more than double what it plans to spend in the Gulf of Mexico this year for capital programs the U.K. North Sea ($90 million compared to $243 million, respectively, as of June 30). It makes you wonder, as Chris Helman does at Forbes, exactly what Schumer is going on about.