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The Dangers Of China’s Growing Oil Demand

The Dangers Of China’s Growing Oil Demand

China’s November oil imports hit…

Investors Avoid CNOOC After $15.1 Billion Takeover of Nexen

CNOOC’S $15.1 billion takeover of Nexen Inc. (NYSE:NXY) the largest foreign acquisition made by any Chinese firm in history, has caused its share prices to fall and investors to back off.

CNOOC’S analyst rating fell to a three year low of 3.38 just two days after the deal was confirmed, meaning that traders are advising against buying shares in the Chinese energy company, and are telling those that already have shares to hold them for the time being.

CNOOC (NYSE:CEO) is China’s lowest cost oil producer, producing oil last year at an average of $9.01 a barrel. It is no wonder then that shareholders are worried that the company that they are set to take over, produced oil at a cost of $20.84 a barrel. It is also no surprise that at this rate, Nexen is ranked as one of the worst oil companies in the world in terms of its earning performance.

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The deal highlights China’s urge to buy oil deposits, even at high cost, in order to secure a supply for the future as its economy continues to grow. The U.S. National Intelligence Council has just forecast this week that China’s economy will be larger than the US economy by 2030.

Shi Yan, an energy analyst at UOB-Kay Hian Ltd., said that “CNOOC is adding assets at a very high cost, which means shareholders won’t see reasonable returns in the next year or two.” It has been this fact, that shareholders will see such a low return as a result of the deal, that has reduced the interest of new investors.

According to Bloomberg, the shares are expected to return 1.2 percent of the next two years, compared to 2.5 percent for PetroChina (CNOOC’s domestic competitor), or 6.8 percent for ExxonMobil. Shi Yan remarked that, “unless you are the Chinese government, I don’t see why investors should be excited about the deal.”

By. Charles Kennedy of Oilprice.com



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