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Chinese energy giant CNOOC Ltd. (CEO - Analyst Report) accepted the clauses laid down by the Canadian government for its acquisition of the Calgary, Alberta-based energy producer Nexen Inc. for approximately $15.1 billion in cash, as per a report from Bloomberg.

To make the road for approval more stringent, Alberta Premier Alison Redford had made a request to the Canadian government last month to insist that at least half of the members of Nexen’s board and management be held by Canadians.

Other recommendations for CNOOC include maintenance of workforce levels for at least five years. This will ensure the maintenance of planned capital spending and an elucidation of research and development goals post merger.

The contract is still subject to approvals from Canada's industry ministry. The Canadian government is reviewing the sale of Nexen keeping in mind the country’s foreign-takeover law that states any such deal should have a “net benefit” to the country for getting the crucial go-ahead. In this respect, it is worth noting that the Canadian government has extended its review program for the second time on November 2 and has put the deadline on December 10.

The developed world will now be faced with a difficult test of accepting Chinese capital that would also mean the relinquishing of control over strategic resources. For more than a quarter this deal has become a debatable issue. A few representatives from the governing Conservative Party has been overwhelmingly negative on the deal with detractors concerned about such a significant possession going into Chinese hands.

Notably, CNOOC − China’s biggest offshore oil and gas producer − highlighted during the July 23 bid that upon the successful completion of the deal, CNOOC will list its shares on the Toronto Stock Exchange. It will also retain Nexen’s existing employees, and establish Calgary as its North and Central American headquarters.

As the world's second-largest economy, China has a huge energy requirement. The Nexen acquisition bid foregrounds not only the bold attempt of CNOOC but also of other Chinese biggies to make deeper inroads into the international energy markets for the specific aim of meeting domestic demand. We note that the CNOOC bid for Nexen marks the biggest Chinese takeover attempt so far.

We maintain our long-term Neutral recommendation on CNOOC. The company currently retains a Zacks #3 Rank (short-term Hold rating).

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