TO BE BOUGHT: A Nexen oil sands facility near Fort McMurray, Alberta, Canada (CFP)

The last hurdle for the Chinese offshore oil giant's takeover of Canadian oil and gas company Nexen has been removed after the U.S. regulator approved the $15.1 billion acquisition of Nexen Inc. by the state-owned China National Offshore Oil Corp. (CNOOC) Ltd. on February 12. The deal is expected to close at the end of February.

CNOOC made a bid in cash of $27.5 per share to the Calgary, Alberta-based company on July 23, 2012 and promised to retain the $4.3-billion debt from Nexen. The proposed acquisition was approved by Nexen shareholders in September last year.

The deal passed regulatory examination in Canada, Europe and China. Approval from the Committee on Foreign Investment in the United States was needed because of Nexen's U.S.-based interests.

It will be China's biggest-ever overseas acquisition once it is completed. CNOOC's successful takeover could offer a textbook example for Chinese companies looking to expand abroad. But observers worry about the profitability of the deal and the integration of two sharply different management cultures.

A good example

As many Chinese companies emphasize their "going global" strategy, their overseas expansion plans often encounter many obstacles.

Chinese companies, especially state-owned enterprises, have been frequently targeted in recent years because of growing protectionism amid a sluggish global economic recovery.

CNOOC in 2005 failed to buy American petrochemical corporation Unocal for $18.5 billion, a deal that foundered on U.S. allegations of national security concerns. Seven years later, CNOOC made an offer to Nexen and the deal managed to withstand intense scrutiny in Europe and the United States.

Compared with other state-owned energy companies, CNOOC has its own special characteristics. Back in the 1980s, the Chinese Government dismissed the petroleum ministry and set up Sinopec, PetroChina and CNOOC for producing and selling petroleum. In sharp contrast with the other two conglomerates that boast technologies and infrastructural equipment for onshore oilfield exploiting, CNOOC was assigned to exploit offshore oilfields. CNOOC had no choice but to start from scratch. It cooperated with foreign companies on offshore oil and gas exploitation, becoming the most attractive energy company in China for foreign investors.

CNOOC has been on the fast track of global expansion in recent years. In 2011, it bought oil-sands producer OPTI Canada at $1.2 billion.

Although CNOOC failed to acquire Unocal back in 2005, it gave CNOOC more experience in overseas M&A, which made it better prepared for the Nexen deal, said Lin Boqiang, Director of Xiamen-based China Center for Energy Economic Research.

A change in the global economy is another reason for CNOOC's success. Changing global energy dynamics gives CNOOC a golden opportunity to win takeover bids, said Lin. He adds that countries rich in energy sources, such as Canada and Russia, are eyeing new markets, while China is one of the very markets that big energy countries are seeking out.

The sluggish global economic recovery is beneficial for Chinese companies seeking overseas acquisitions, said Lin.

"Mired in shrinking energy demands, some cash-strapped foreign countries are forced to seek out investment or equity acquisition. It's a good opportunity for China's energy companies with their hands full of cash," he said.

A win-win deal

Lin also attributed the success to CNOOC's open communication with Nexen and the Canadian Government, and the concessions it made during negotiations.

As part of the agreement, CNOOC promised to keep Nexen jobs in Canada, make Calgary its base for its American operations, acquire the $4.3 billion debt from the Canadian company, and participate in developing gas and oil resources in Canada.

"Those promises are definitely beneficial for Nexen's future sustainable development and are in line with interests of Canadian citizens," said Lin.

However, the Canadian Government insists that it will allow no further takeovers by Chinese state-owned enterprises except under exceptional circumstances after giving the green light to the CNOOC-Nexen deal.

Nevertheless, it's widely believed that there will be more deals in the energy sector simply because Canada needs further investment to develop its vast oil resources.

For CNOOC, acquiring Nexen's assets will strengthen its presence in Canada, Nigeria and the Gulf of Mexico and allow it to enter the oil- and gas-rich North Sea regions, says the company.