CNOOC answers the question: 'What's next?'

The acquisition of Canada-based Nexen is a big step to diversify geographically while boosting oil and gas reserves, reports Zhang Yuwei from New York.

In an auditorium in late February at the headquarters of oil and gas company Nexen Inc in Calgary, Alberta, two Chinese oil company executives sat on the stage. In front of them, more than 1,000 people, who the day before were employed by Nexen. Now they worked for the two men on the stage who oversee the third-largest oil company in China. And the question on their minds was, "What's next?"

The two CNOOC Ltd executives were Chairman Wang Yilin and CEO Li Fanrong.

To the gathered employees, about one-third of Nexen's workforce, Li gave them answers: Nexen will remain autonomous; CNOOC will keep Nexen's head office in Calgary, retain the some 3,000 employees at their current salaries, list shares on the Toronto Stock Exchange and continue Nexen's community and charitable programs.

The meeting was the first introductory session by CNOOC (China National Offshore Oil Corp) for employees from Nexen, which became a wholly owned subsidiary of CNOOC in a $15.1 billion deal - the largest overseas acquisition by a Chinese company ever.

"It was well received," said a Nexen employee who attended the town-hall session, describing it as "exciting and interesting."

Industry experts see the Nexen deal as a major step by CNOOC to diversify geographically, which Chinese oil and gas companies have been doing since 2009 by purchasing assets in the Middle East, North America, Latin America, Africa and Asia.

The acquisition will increase CNOOC's oil production by about 20 percent, which was between 341 million and 343 million barrels oil equivalent in 2012, and reserves by 30 percent, said CEO Li.

"The move certainly helps CNOOC become more geographically diversified," said John Licata, founder and chief energy strategist at New York-based Blue Phoenix Inc, an independent energy-research company.

"But now that the company gains a footprint in new areas, management needs to explore how best to build upon existing relationships to further enhance and foster even more business opportunities in these regions."

"CNOOC has the opportunity to roll up its sleeves and maximize Nexen's ability to break down heavy oil through technological advancement," he said.

"CNOOC needs to beef up exposure to clean fuels, especially since coal is still rather dominant in China, so while the Nexen deal makes sense, the company needs to not make the same mistakes as the US and become too focused on one or two energy sources."

The largest overseas acquisition by a Chinese company was first announced in July. Canadian regulators approved it in December.

In February, the Committee on Foreign Investment in the United States (CFIUS), which reviews sensitive deals by foreign investors in the country, signed off on the deal's part involving Nexen's assets in the Gulf of Mexico.

"The one-year acquisition process was filled with hardships," CNOOC Chairman Wang recently told the Shanghai Securities News.

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