China National Offshore Oil Corp. (CNOOC), a Chinese state-run oil giant, is running for acquisition of Nexen Inc., a debt-ridden transnational Canadian oil company.

CNOOC announced in late July that it has entered into an agreement to buy Nexen for $15.1 billion. If completed, the deal will be the largest Chinese acquisition of an overseas company to date.

It marked another attempt by CNOOC to buy a major oil company in North America after its failed bid to acquire California-based oil producer Unocal seven years ago. Vehement political opposition from the United States in light of concerns over national security caused the Unocal purchase to fall through. As Nexen holds assets in Canada, the United States and Britain, the new deal should also be subject to regulatory approval in those countries.

However, compared with the failure seven year ago, observers are more optimistic about the CNOOC-Nexen deal as it has come along at the right time, with generous terms that will benefit both sides in the long run. But they also pointed out potential hurdles.

"By far, the Canadian side is very active and has shown great interest in the deal as it will help the export diversification of Canadian energy resources," said Jia Xiudong, a senior research fellow on international affairs with the China Institute of International Studies.

Dong Chunling, a researcher on energy issues with the China Institutes of Contemporary International Relations, said, "With adequate funding and a broad market, the Chinese oil producer has the ability to take over Nexen. It could promote the development of Canada's energy sector."

Sprint again

In 2005, CNOOC made an $18-billion bid for the U.S. gas company Unocal. Although it offered a much higher price, the Chinese firm was forced to quit after U.S. lawmakers denounced it as a threat to national security.

"This time is different," said Jia. "Though Nexen has assets in the United States, it is an independent Canadian company. Therefore, the barriers from the United States are much lower."

"Canada is rich in energy resources. The country has more oil and gas than it needs but it faces energy export difficulties as its biggest oil importer, the United States, postponed a major oil pipeline from Canada to the United States not long ago," Jia said to Beijing Review. "So, Canada is in need of diversifying its oil export markets and attracting more foreign investments."

In light of the coming general election, U.S. President Barack Obama again put on hold plans for the Keystone XL pipeline project at the beginning of the year. The pipeline, from Canada's Alberta to the coast of Texas, would double exports of Canadian tar sands oil into the United States and transport it to refineries on the coast of the Gulf of Mexico and ports for international export.

Ottawa was disappointed with the decision of Washington and began to turn to Asia for energy export. Earlier this year, Canadian Prime Minister Stephen Harper's visits to China, Japan and South Korea were seen as a prelude of its new strategy.

Under the circumstances, Chinese energy enterprises with adequate funding resources such as CNOOC have become attractive potential partners for Canadian energy cooperation, said Jia.

"Nexen is under severe debt problems and needs urgent financial aid. Meanwhile, it has already had successful cooperation with CNOOC on several occasions before the acquisition," Dong said.

CNOOC has been a major investor in Canada in recent years, with a total investment of $2.8 billion in the country since 2005. CNOOC and Nexen have worked together on the Long Lake oil sands project. The two also formed a joint venture to drill deepwater wells in the Gulf of Mexico in 2011.

"CNOOC has made Nexen a very tempting offer this time," Dong added. The $27.5 per share offered by CNOOC in the deal represents a premium of around 60 percent to Nexen's recent stock price on the New York Stock Exchange. Additionally, the Chinese oil giant said Nexen's current debts of approximately $4.3 billion will remain outstanding.

The company also promised to establish Calgary as the headquarters of its North American and Central American operations and retain Nexen's existing management team and staff. Its shares will be listed on the Toronto Stock Exchange, and the new firm will continue research into tar sands in Alberta.