UPDATE, 7/24/12, 6:00 p.m. EDT: Legal Week reports that Herbert Smith is advising CNOOC on UK and European Union aspects of the deal, with a team lead by competition head James Quinney and energy partner Simon Tysoe. Also, additional Stikeman Elliott partners have been added to the article in the seventh paragraph.
China National Offshore Oil Corporation (CNOOC), the state-owned energy giant, said Monday that it will pay $15.1 billion to acquire Canadian oil and gas company Nexen Inc. CNOOC will also assume $4.3 billion of Nexen debt.
The deal’s price tag exemplifies the level of interest Asian investors have been showing in North American energy assets. Earlier this year, China Petrochemical Corporation (Sinopec) paid $2.2 billion for a minority stake in Oklahoma City–based Devon Energy Corp., while CNOOC has completed multiple deals to acquire oil and gas assets from Oklahoma City’s Chesapeake Energy in recent years. Canada’s natural resources have proven to be especially enticing to Asian bidders, with major deals including the recent $5.4 billion sale of Calgary-based Progress Energy Resources to Malaysian state-owned company Petroliam Nasional Berhad and Sinopec’s 2009 deal to acquire Calgary-based Addax Petroleum Corporation for $7.3 billion.
The agreement between CNOOC and Nexen has the potential for awkwardness, according to The Wall Street Journal, as Canadian regulators look to balance the benefits of foreign investment with the fear of losing control of its natural resources. But CNOOC has come to the table with an enticing offer that would pay $27.50 in cash for each Nexen common share—a premium of 61 percent over the target’s Friday closing price. The purchase would give CNOOC a foothold in Western Canada and oil and gas producing areas around the Gulf of Mexico and the North Sea. Nexen also offers access to Canada’s lucrative oil sands, specifically in the Alberta province.
The deal is sure to face regulatory scrutiny in Canada, where foreign investors are tasked with proving a transaction’s net benefit to the country. The deal is expected to close in the fourth quarter, pending regulatory and shareholder approvals. The agreement includes a breakup fee of $425 million that would be paid to Nexen in the event that Chinese regulators do not approve the deal, while CNOOC would receive the same amount should Nexen’s board withdraw its support of the deal.
Sibling publication The Asian Lawyer reported recently on the crush of U.S. firms hoping to cash in on outbound investments involving Chinese companies. Davis Polk & Wardwell seems to be establishing itself as a go-to legal counsel for CNOOC, having advised the company in April on a $2 billion debt issue on the Hong Kong Stock exchange, news also originally reported by The Asian Lawyer.
Davis Polk is also advising CNOOC on its agreement with Nexen, turning to a corporate team that includes New York partners George Bason Jr. and Leonard Kreynin, as well as Beijing partner Howard Zhang and Hong Kong partner Kirtee Kapoor. Antitrust partner Ronan Harty is also advising, while partners Paul Chow and Antony Dapiran are providing Hong Kong law advice. Partner John Reynolds III is advising on matters related to the Committee on Foreign Investment in the United States (CFIUS).
Stikeman Elliott is Canadian counsel to CNOOC on the deal with a team that includes M&A partners William Braithwaite, John Ciardullo, and Christopher Nixon. Energy partner Bradley Grant, real estate partner Michael Dyck, environmental partner Greg Plater, and employment partner Gary Clarke are also working on the deal, while counsel Lawson Hunter and partner Susan Hutton are advising on competition aspects. Stikeman’s team also includes tax partners Ron Durand and David Weekes, as well as pensions partner Andrea Boctor, environmental partner Larry Cobb, and corporate partner Lewis Smith.
Canadian firm Blake Cassels & Graydon is lead counsel to Nexen on the deal, while Paul, Weiss, Rifkind, Wharton & Garrison is serving as U.S. legal counsel. The Blake team is lead by Calgary-based corporate partner Pat Finnerty and it also includes securities partners Jeff Bakker, Ross Bentley, John Eamon, Shlomi Feiner, and Michael Gans. Competition partner Jason Gudofsky, pension and benefits partner Caroline Helbronner, tax partner Robert Kopstein, and litigation partner David Tupper are also working on the deal. Partners Connie Reeve and Brian Thiessen are advising on employment law matters.
Blake has advised Nexen on a number of past corporate and securities issues, including the 2010 sale of the company’s natural gas marketing business to a Goldman Sachs Group subsidiary.
Meanwhile, Paul Weiss’s corporate team advising Nexen includes partners Jeanette Chan, Andrew Foley, and Edwin Maynard.
Nexen’s board of directors has turned to Burnet, Duckworth & Palmer senior securities partner Grant Zawalsky, as well as Calgary-based Richard A. Shaw Professional Corp., for legal advice.