Nexen/Cnooc Company Analysis

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Nexen/CNOOC company analysis

Executive summary
Nexen is an oil & gas exploration and production company that operates out of Calgary Alberta, Canada. They are a well-run, profitable, and responsible company that operates in 7 countries and does both onshore and offshore drilling for conventional oil & gas, shale gas, and oil sands. Their board of directors has recently unanimously agreed to a $15.1 billion buyout by China National Offshore Oil Company (CNOOC), which is currently under review by the Canadian government. Nexen employs a knowledge-based workforce of highly skilled workers and uses state of the art technology in the oil & gas exploration and production industry. However, the combination of the small number of workers required to operate an oil & gas production facility, combined with the requirement of a highly skilled workforce to operate and maintain the facility is enough to recommend that our country not allow Nexen to set up operations in our country. Company description

Nexen is a Canadian based oil company whose headquarters are in Calgary Alberta. They started operating in Canada in the oil sands in northern Alberta. Since its inception in 1971 the company has expanded internationally to on-shore drilling in Yemen, and off-shore drilling in the North Sea of the UK, the Gulf of Mexico, West Africa, as well as Poland and Columbia (FP Advisor). Nexen explores, develops, and produces in three principle businesses within the Oil & Gas industry, conventional oil and gas, shale gas and oil sands like those found in northern Alberta. In July 2012, China National Offshore Oil Corporation (CNOOC) placed a bid to buy Nexen for $15.1 billion dollars, which is the largest foreign acquisition made by a Chinese company. Forbes ranks Nexen 799th on its 2000 global leading companies list, and attributed its market cap at around $10.22 billion and annual sales of $6.35 billion (Forbes). The company has just over 3,000 employees operating in seven countries around the world. Nexen reported operating revenue of $6.341 billion at the end of the calendar year in 2011, which ranks them 5th among Canadian oil & gas companies (FP Advisor). A troubling aspect for Nexen is the fact that they reported earnings per share of $1.32, down from $2.28 the previous year, and a drop in percentage return on equity to 4.63%, down from 7.02% in the same time period. Furthermore, on September 30th 2012, they reported that earnings per share had dropped further to $0.71 earnings per share and their net income attributed to equity holders had dropped from $697,000 to $382,000 in the same period (FP Advisor).

The ongoing story of whether the Canadian government will allow to the $15.1 billion buyout of Nexen is a major question mark for Nexen and CNOOC, as well as investors. The Canadian government is worried about foreign state owned enterprises (SOE’s) taking over important Canadian companies in key industries such as oil & gas production. Nexen’s board of governors has unanimously accepted the offer as the company would benefit from the increased capital and resources provided by the Chinese giant. However the main issues raised by the Canadian government are making sure that SOE’s like CNOOC follow the rules of the Canadian market place and have “transparency, disclosure, and adhere to Canadian Law” (Financial Post). There is concern over the efficiency of state run companies, as well as the issue of Canadian national security. These are all issues that the Canadian government is wrestling with and this is something that our country should follow closely if we are to allow Nexen/CNOOC foreign direct investment in our country. These are all issues we will have to assess while making our decision.

International strategy
Nexens main industry consists of exploring, developing and producing natural gas, crude oil, shale gas, and oil sands. They actively are looking for oil & gas hot spots around the world...
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