CNOOC is set to formally apply this week for Investment Canada’s approval to take over Calgary-based Nexen, whose board has agreed to the offer that would provide shareholders with a 62-per-cent premium on the stock price.HANDOUT/Reuters
Nexen Inc.'s new set of quarterly earnings make one thing abundantly clear: the company isn't making much from its Canadian assets.
Although the overall cash flows look decent year-to-date – its cash flow from operations during the first three quarters is up roughly 9 per cent over the same period in 2011 – its Canadian oil operations have stumbled. From January to September, they posted a 25 per cent drop in cash flows over the year prior.
Better yet, strip out Nexen's 7 per cent stake in Syncrude, and its Canadian oil operations are actually losing money. (Other than Syncrude, Nexen's second major asset is its 65 per cent stake in the Long Lake in situ oil sands project.)
The funny thing is, the drop doesn't matter much because the Canadian oil operations currently comprise just shy of 10 per cent of total cash flows. That's something you don't hear much about amidst all the rhetoric circling CNOOC's proposed takeover of Nexen.
Now, the obvious rebuttal is that Nexen's current operations aren't really that important – what matters is its reserves. And it has plenty of untapped oil in Canada. According to its latest annual information form, it has roughly 900 million barrels of proven oil reserves, of which over two-thirds rests in Canada.
But no matter who owns the company after Investment Canada weighs in on CNOOC's proposed takeover, its going to take a long time, and a lot of money to extract that value.
Tim Kiladze