China National Offshore Oil Corp (Cnooc), the country's largest offshore oil producer, yesterday struck a deal to acquire Canada's sixth-largest oil producer Nexen Inc for about $15.1 billion in cash.

If the deal goes through, it would mark the largest ever overseas hydrocarbon acquisition by a Chinese entity.

Beijing-based Cnooc will pay $27.50 per share in cash, representing a premium of 61 per cent to the Calgary-based company's 20 July closing price on the New York Stock Exchange.

The deal value of approximately $15.1 billion will be paid by Cnooc through existing cash resources and external financing. Nexen's current debt of around $4.3 billion will remain outstanding, and both companies expect the transaction to close in the fourth quarter of 2012, subject to government approvals.

The agreement provides Cnooc to match a superior proposal and a break-up fee of $425 million if Nexen withdraws or modifies the agreed deal, while Cnooc will the pay the same amount if Chinese regulators turn down the deal.

The transaction has to be approved by regulators in Canada, the US, the EU (if required) and China.

However, the deal could fall through as the Canadian government can block any investment worth over C$330 million if it thinks the deal is not in Canada's best interests.

Highlighting the transaction benefits to Canada and to soothe its regulators, Cnooc said that it will establish Calgary as its North and Central American headquarters, which will manage Nexen's global operations and Cnooc's $8 billion worth of existing operations in the region.

It will continue with Nexen's current management team and employees, enhance capital expenditures on Nexen's assets, and plans to list Cnooc on the Toronto Stock Exchange.

The acquisition of Nexen expands Cnooc's overseas businesses and complements its large offshore production footprint in China. It also extends its global presence with a high-quality asset base in many of the world's most significant producing regions focused on conventional oil and gas, oil sands and shale gas, Cnooc said in a statement.

Wang Yilin, chairman of Cnooc said, "The acquisition reflects our strong belief in Nexen's rich and diverse portfolio of assets and world-class management and employees. This is an exciting opportunity for us to build on our existing joint venture relationship with Nexen in Canada, and to acquire a leading international platform in the process. We strongly believe that this acquisition will create long-term value for CNOOC Limited's shareholders."

Both companies are familiar with each other, having formed a joint venture late last year, which gave Cnooc a stake in up to six deepwater exploration wells in the Gulf of Mexico.

Nexen currently produces approximately 20,000 barrels of oil equivalent per day in the Gulf of Mexico and is one of the top leaseholders in the deepwater Gulf.

It also has a significant discovery at Appomattox, 2,200 meters of water in Mississippi Canyon blocks 391 and 392, containing at least 250 million barrels of contingent recoverable resource.

It has a 20-per cent interest in Appomattox, while the remaining is held by Shell - the operator of the blocks.

Shell and Nexen had made an initial discovery in the deepwater eastern Gulf of Mexico in 2003 with the Shiloh discovery. A second discovery followed in 2007 at Vicksburg located about 10km east of Appomattox.

Nexen has recently been looking for partners to fund the development of its oil and gas assets. Late last year, it sold a 40-per cent stake in its northeast British Columbia shale gas assets to Japan's Inpex Corp led consortium, for C$700 million ($678.7 million). (See: Canada's Nexen to sell 40-% stake in shale gas assets to Japan's Inpex for C$700 mn).

Nexen has global operations in the oilsands, natural gas region of Western Canada and in the Gulf of Mexico, North Sea, Africa and the Middle East.

The company had 900 mmboe of proved reserves and 1,122 mmboe of probable reserves as of 31 December, 2011, and produced an average of 213,000 barrels of oil equivalent a day in the second quarter of this year.

Analysts expected Cnooc to make a move on Nexen after the Chinese oil giant in November 2011 acquired bankrupt oil sands developer Opti Canada for C$2.1-billion ($2.04 billion).

The deal gave Cnooc a 35-per cent stake in the Long Lake oil sands project, which can produce 58,500 barrels of oil per day, and three other oil sands leases located in the Athabasca region of Alberta.

The Long Lake project and three other oil sands leases are jointly owned by Opti and Nexen, where Nexen is the sole operator of the Long Lake project.

Oil sands are deposits of heavy oil, or bitumen, found in sand and clay, which requires treating and upgrading for use in refineries to produce gasoline and diesel fuels.

Cnooc has already invested C$2.8 billion in Canada since 2005, which includes a stake in MEG Energy, OPTI Canada, and a 60 per cent interest in Northern Cross (Yukon) Ltd.

China has been scouting for oil and mineral assets around the globe and its oil companes have recently invested more than C$18 billion through joint ventures and partial stakes in the Alberta oil sands region, the largest known crude deposit outside the Middle East.