With a deal value of over US$15 billion, including debt, the recent acquisition of Canadian listed oil and gas company Nexen by China’s CNOOC represented a watershed moment in China’s corporate history.
Not only was it the country’s largest cross-border takeover, it also demonstrated that a Chinese state-owned business could successfully acquire important assets in North America’s politically sensitive Oil & Gas industry. The deal took many months to complete, with a multi-disciplined team from KPMG member firms playing an integral role in bringing the negotiations with CNOOC, Nexen and industry regulators to a successful conclusion.
KPMG’s involvement in the acquisition began early on in the process. “We had previously advised CNOOC on a number of transactions, so they knew our experience and global capabilities in the Oil & Gas sector, “says Vic Naathen, an Associate Director in the UK firm’s Energy and Natural Resources practice. “We then quickly mobilised our Oil & Gas teams from across our global network in Beijing, London and Calgary.”
Nexen’s diverse asset footprint spans the globe, with significant holdings in Canada, the US, the UK North Sea and West Africa. Their assets span the exploration and production sector, including conventional oil and gas, oil sands, shale gas and energy marketing. Thus, in terms of due diligence and deal structure, the transaction required a thorough understanding of the risks and value drivers across a range of commercial situations and territories.
In this respect, relationships were hugely important, both in terms of winning the work, but also in the ability to quickly assemble an experienced, cross-border team. “It was truly an international effort,” says Vic. “The Oil & Gas network within KPMG enabled us to quickly bring together and harness the required global industry knowledge and skills.”
Vic’s work began in London before quickly relocating to Beijing, where he spent six months working in-step with the client on the project. “Initially we were working on information from the public domain,“ he says, “our role was to analyse this information on Nexen in order to understand the company, as well as identify its key risks and value drivers.”
A second phase of due diligence followed once Nexen opened its books to CNOOC. At this stage, CNOOC and its advisors, including KPMG, had access to more detailed information, but as Vic explains, this presented its own set of challenges. “We had a very limited amount of time in which to work, “he says. “So the challenge was to keep a very tight focus on the information we knew CNOOC would need to make an educated bid.“
The due diligence process took place against a backdrop of painstaking negotiations on the part of CNOOC. Building on their experience from the aborted bid for Unocal in 2005, CNOOC took great care in addressing the concerns of Nexen’s stakeholders in the US and Canada.
As the bid progressed, KPMG’s involvement widened. “We had a multi-disciplinary team in place,“ says Vic. “In addition to carrying out the due diligence, we also advised on deal structuring and regulatory reporting.”
It was a process that not only drew upon the technical skills associated with financial analysis, transaction structuring and regulatory reporting, but also on deep oil and gas sector knowledge and the ability to marshal workstreams around the clock across multiple jurisdictions.
The CNOOC acquisition of Nexen cleared its last regulatory hurdle in early February 2013 and the transaction was completed on the 26th after several months of work by CNOOC and its advisors. For CNOOC, the transaction has not only meant the acquisition of a large reserve and resource base, but also the attainment of experienced employees capable of developing and extracting value from the assets.
CNOOC International’s Secretary Likun Kuang commented:
“KPMG’s work was critical to the transaction. Through the due diligence, the KPMG team not only helped CNOOC to better understand Nexen’s financial situation but also identify the contingent risks, thereby helping the commercial team to build their commercial valuation model. More importantly, even after the completion, the KPMG team is still contributing significantly towards integration, purchase price allocation and tax structuring/re-organisation. CNOOC is looking forward to further cooperation with your team.”
Meanwhile, the project was another example of KPMG member firms advising on significant Chinese outbound transactions at a time when the country’s energy companies continue to emerge as key players on the world stage. Since then, KPMG member firms have advised on a number of significant oil and gas transactions, including Sinopec’s acquisition of 49% of Talisman Energy UK’s North Sea assets.
Associate Director, KPMG
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