(The following statement was released by the rating agency)
July 25 - Fitch Ratings has said that there is no immediate impact on China-based CNOOC Limited’s (CNL, ‘A’/Stable) ratings following its definitive agreement to acquire 100% of Nexen Inc (Nexen), a Canadian upstream oil and gas producer, for an equity value, including preferred shares, of USD15.1bn.
Fitch is of the view that the acquisition, if completed, will substantially increase CNL’s reserves, production growth and diversification into overseas and unconventional energy sources. Fitch assumes CNL will use cash and its equivalents and other near-liquid assets or external debt to finance the acquisition. However, the agency does not rule out the option that an equity injection may part finance the deal given the size of the acquisition. The company has yet to announce its funding plans. As part of the deal, Nexen’s USD4.3bn debt will remain outstanding but CNL will gain USD1.5bn of Nexen’s cash and proceeds from in-the-money options at the offer price.
Nexen is a material acquisition for CNL and will add net proven reserves of 900 million barrels of oil equivalent (mmboe) to CNL’s 3,190mmboe. The Canadian company is expected to produce 68-80mmboe in 2012, compared with CNL’s 330-340mmboe. Although the acquisition will weaken CNL’s balance sheet, it has the financial resources to complete the deal and maintain funds from operations (FFO_ adjusted net leverage below 1.0x (December 2011: net cash).
However, the medium term success of the potential acquisition will depend on CNL’s ability to integrate such a sizeable overseas company into its group. As the largest overseas deal that the company has undertaken, this will be a challenge.
The deal is subject to various approvals and several pre-conditions and is not expected to close before Q412.
Fitch’s ratings for CNL currently factor in a notch of implied support from the Chinese sovereign (‘A+'/Stable).