Nexen Brings Chinese Partner to Gulf of Mexico

Chinese oil and gas giant CNOOC Ltd., shut out of the Gulf of Mexico in 2005 when its $18.5-billion offer for Unocal Corp. was snubbed, is getting into the play through a joint venture with Calgary-based Nexen Inc.

CNOOC - which partners with Nexen at its Long Lake thermal oilsands project - will earn minority working interests in up to six deepwater exploration wells in the Gulf, Nexen said Wednesday.

No financial terms of the deal were given.

"The dragon returns and there is potential more interest. This is not done yet," said Wenran Jiang, a senior fellow at the Asia-Pacific Foundation of Canada and a University of Alberta associate professor of political science. He was reached in Beijing where he's attending a conference.

"CNOOC traditionally has been having strength and focus on offshore and this makes perfect sense for CNOOC to do this with Nexen," he said.

The deal was announced a day after Nexen said it would sell a 40 per cent interest in northeastern B.C. shale gas assets to Japanese partners for $700 million.

CNOOC dropped its allcash bid for Unocal, whose best assets were in Asia and the Gulf, after U.S. politicians expressed concern national security would be compromised if Unocal fell to a company 70 per cent owned by China's Communist government.

More recently, development in the Gulf has been stunted since the Deepwater Horizon oil platform disaster in 2010, which killed 11 men and spilled an estimated four million barrels of oil.

"This agreement is the culmination of an extensive process to recognize some of the value our exploration team has created in the Gulf of Mexico," said Marvin Romanow, Nexen's president and chief executive, in a news release. "We are seeing a gradual return to normal activity in the Gulf and this deal is a reflection of the fact that the basin remains a very exciting one for deepwater exploration prospects."

He added Nexen's strategy is to utilize joint-venture agreements to reduce its working interests and obligations to 25 per cent to 30 per cent in expensive offshore plays.

CNOOC owns a 35 per cent stake in Long Lake, which operates well below its 72,000 capacity of barrels per day as operator Nexen works to overcome reservoir problems with the $6.1-billion project.

The Chinese company bought Opti Canada in a $2.1-billion deal that closed last week after winning federal approval. It agreed to pay $34 million for Opti and assume $2 billion in debt. CNOOC also owns 14 per cent of thermal oilsands company MEG Energy Corp.

Under the agreement announced Wednesday, CNOOC is to take a 20 per cent working interest in the Kakuna well, which is now being drilled, and the Angel Fire well, which is expected to spud in 2012, plus a well called Cypress.

Kakuna is Nexen's first operated exploration well since the end of the U.S. moratorium on Gulf of Mexico drilling prompted by the spill.

CNOOC has the option to participate in three additional exploration wells in the Gulf with a 10 to 25 per cent working interest, Nexen said.

Jiang said CNOOC has lots of cash to spend after the recent failure of a deal by Bridas to buy BP's Argentine unit. CNOOC owns half of Bridas.

Nexen produces about 20,000 barrels of oil equivalent per day in the Gulf of Mexico. It has interests in leases on more than 200 blocks with 100 prospects and three undeveloped discoveries.

Last year, Nexen announced a discovery at Appomattox of at least 250 million barrels of contingent recoverable resource. It has a 20 per cent interest in the well with the remainder held by Royal Dutch Shell, the operator. Four wells are to be drilled there in 2012.

CNOOC, China's largest producer of offshore crude oil and natural gas, trades on the New York Stock Exchange.

It gained $12.03 to close at $193.32 on Wednesday, giving it a market capitalization of $86 billion US. Nexen rose for the third straight day, up $1.04 cents to close at $16.99, although it remains down more than 25 per cent on the year.

In its 2012 capital plan announced Tuesday, Nexen said it would spend $900 million over the next three years at Long Lake to drill new wells and add steam generators and associated infrastructure, in addition to sustaining capital of about $200 million on existing wells.

In 2012, it plans to spend between $200 million and $425 million at Long Lake, depending on regulatory approvals, and it plans to drill 200 core hole wells this winter.

(calgaryherald.com)