Back in 2005 the China Offshore Oil Company, or CNOOC, got burned when U.S. lawmakers made noises to block its US$18.5-billion takeover of integrated Unocal Oil Company, eventually bought by Chevron. Since then, it’s been more timid than the two other Chinese state-owned oil companies, Sinopec and China National Petroleum Corp. (parent company of PetroChina) investing in North America. Its only oilsands holding is a piece of junior MEG Energy (now a public company) acquired around the same time as the withdrawn Unocal bid.
But with its $2.1-billion rescue of Opti Canada, which just last week entered creditor protection, it not only reasserts its Canadian presence; it looks like the good guy. While shareholders will receive only the slightest of premiums on their 12-cent share price, the big winners are bondholders, who will recoup a greater share of their loans and not be saddled with stock in an operationally troubled and undercapitalized company. Under the deal second lien debtholders will get $1.18 billion while CNOOC assumes first-lien notes for $825 million. “Backstop parties” will get $37.5 million.
Probably more important to CNOOC than the 35% stake in the problem-plagued Long Lake project that provides all of Opti’s cash flow are the three undeveloped oilsands properties which it can now proceed to develop at a time of its choosing using the best technology available. In the meantime, it will doubtless learn a thing or two from Long Lake’s operator and majority owner, Nexen Inc. Expect this deal to go through. It’s CNPC/PetroChina that has a history of backing out of Canadian resource deals, not CNOOC, and Canadian regulators will see this for what it is: a best-possible end to a messy business.