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CNOOC pushes ahead with Nexen acquisition

By Oswald Chen  (China Daily)

13:16, August 22, 2012

An advertisement for CNOOC Ltd's booth at a trade show in Shanghai in August 2011. The company has only nine years' worth of reserves based on its current production - one of the lowest among global oil majors. (Photo/ China Daily)

Mainland oil giant slashes dividends to help raise funds to back Canadian deal

CNOOC Ltd has announced it will take drastic measures to get the money it needs to buy Nexen Inc in the wake of the Chinese oil giant's disappointing first-half profits.

CNOOC Chairman Wang Yilin said at a news conference in Hong Kong on Tuesday that the company will reduce its dividend almost by half to help raise the $15.1 billion it needs to buy the Canadian company. CNOOC will also raise the additional capital it needs.

CNOOC, China's top offshore oil producer, last month launched the country's biggest foreign takeover bid by agreeing to buy Nexen, whose global portfolio includes oil sands and shale gas. But CNOOC's first-half profits then fell nearly 20 percent.

"Our strong cash inflow should sufficiently support the planned Nexen acquisition. However, we still need to raise capital to fund our cash bid for Nexen to improve our capital structure that can foster the company's long-term development," Wang said.

The Nexen deal should help China gain both the technology and operating experience it needs to extract potentially huge domestic reserves of bitumen, heavy oil and shale oil, said industry experts. CNOOC has only nine years' worth of reserves based on its current production - one of the lowest among global oil majors.

"The acquisition should enable CNOOC to build up its oil and gas reserves by 20 to 30 percent. This is very important for CNOOC as its market valuation can be significantly raised because of the jump in reserves in future," said AMTD Securities Business Manager Kenny Tang.

As to whether CNOOC should divest some of Nexen's assets to lessen the US Congress' potential opposition to the acquisition, Wang stressed: "The acquisition is a pure commercial agreement, and we have no plans to divest any of Nexen's assets after the proposed acquisition."

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