1-St Group, CNOOC

CHINA NATIONAL OFFSHORE OIL CORPORATION
AND STAKEHOLDER MANAGEMENT
Group 1
Case study Questions
1. Explain why CNOOC’s acquisition of Nexen in Canada generated more

public debate than most foreign takeovers.
2. What is the best way for CNOOC to act within that public debate?
3. What do you think about Nexen’s handling of the oil spill incident? Did
Nexen handle this well, or are there issues it might have handled better?
4. How should Nexen handle the plant explosion incident in January 2016?
The development of CNOOC
The CNOOC Group was estabilished in 1982 under the central government of China.
In 1999, the CNOOC Group established CNOOC Ltd. in Hong Kong as its international holding
company.
It first attracted international attention in 2005. Failed to take over the Californian oil and gas
firm due to political opposition in the US.
Its first major acquisition in the United States came in 2010. (Eagle Ford Shale Project in Southwest
Texas, jointly owned with Chesapeake Energy Corporation)
It published “Second Leap Forward Development Strategy” aiming to expand oilfield professional
services, petroleum sales, and oil trade.
In 2015, the CNOOC Group climbed to 72nd place in the Fortune Global 500, with total assets of
¥1,164.2 billion.
The Financial Problems of Nexen
Long Lake project

Applied SAGD technology to get environmental authority approval in 2003
focus on locations where the extraction of oil was

technical problems & engineering missteps => technologically challenging => operating costs were
failed to meet production targets much higher than other major oil exploration
companies
uneven deposits interspersed with shale
=>variation in quality across locations
large-scale commercial operation=> OPTI, Nexen’s partner, ran into financial difficulties.
CNOOC took over OPTI, thereby acquiring an equity
costly delays in the construction stake in the Long Lake project.
The poor financial performance led to speculation that Nexen would

become a takeover target.
CNOOC acquisition of Nexen
Supported by “gong-out strategy”, large enterprise invest overseas not only for the market concerns, but also for energy
security.
1. Canada has rich natural resources, energy

security, advanced science and technology. 1. Foreign state-owned enterprise owned by the
non-democratic state caused public
2. Professional management and experienced staff
apprehension
can offer more learning opportunities. (administrative distance)
S W
3. Canada offered a relatively stable political
environment.
S W 2. Foreign government that doesn’t follow the
4. Nexen can also help CNOOC to diversify its asset same market rules as Canada
portfolio geographically.
T
1. Canada need to sell more resources to
O T 1. Need approvals from authorities in Canadian, US,
Asia since the United States was no longer
and European
Canada's only major customer
2. Must follow the Canadian foreign takeover law
2. Nexen got into financial difficulties 3. Global oil markets experienced volatile due to
increasing demand from emerging economies.
CNOOC acquisition of Nexen
Supported by “gong-out strategy”, large enterprise invest overseas not only for the market concerns, but also for energy
security.
Results
• CNOOC took over of Nexen on December 8, 2012.
• With the completion of the deal, CNOOC’s worldwide oil production increased by
20 per cent and its reserves by 30 per cent, and it gained access to state-of-the-art
shale gas and deep-water expertise.
• CNOOC agreed to surrender operating control of assets in the Gulf of Mexico to

accommodate U.S. national security concerns.
Post-acquisition strategy and results
Top managers:
Canada negotiate without giving up the Financial challenges:
control • operating costs > exceed;
• Kevin Reinhart – CEO Nexen, since • CNOOC had bought Nexen for $15.1 billion
2012 when the oil price was high >> the oil
• Li Fangrong – non-executive chairman business wasn't attractive at that time;
Integrations:
• joint venture partner;
• foreign capital operation system;
• technology sharing;
• cultural integration.
Sharing information:
• information-sharing platforms.
Safety and environment incidents
A Pipeline leak near Long Lake facility on July 15, 2015
On July 17, Nexen invited the media for a tour of the cleanup operations. Nexen CEO Fang Zhi
publicly apologized for this incident.
Ron Bailey, senior vice-president of Canadian operations showed confidence in CNOOC.
AlER indicated the spill posed no immediate risk to humans or wildlife and had not leaked into any
bodies of water.
95 Pipelines were requested to shut down On August 31, 2015

The AER ordered Nexen to shut down 95 pipelines in Albert because pipeline maintenance and
monitoring were non-compliant. Nexen had to shut down about 9,000 b/d of crude production at
its facility at Long Lake until the investigation was completed and the pipeline was repaired.
An explosion occurred in a hydrocracker facility On January 15, 2016

One worker died at the site and another got seriously injured. The plant was immediately shut
down, and the SAGD facility was set to minimum production rates. The lost production was
estimated to be close to 50,000 b/d.
Handling public scrutiny
• CNOOC had faced intensive attention by Canadian stakeholders since 2012.

• The leadership team of CNOOC-owned Nexen was especially under pressure to engage with a
variety of Canadian politicians, non-governmental organizations, and the media.
• Whether CNOOC’s international growth strategy itself needed to be adjusted.

• Should CNOOC cut its losses and downscale its engagement in Canada and the oil sands
industry in particular?
• Should CNOOC refocus its Canadian operations to use its Canadian assets in a different way?
(1) half of all board and management positions were to be held
by Canadians,
(2) the employment level would be maintained for at least five

years,
CNOOC (3) Nexen’s headquarters would remain in Calgary,
was ready (4) CNOOC itself would be listed on the Toronto Stock Exchange,
to: and
(5) CNOOC would continue Nexen’s social responsibility and

investment plans.
CNOOC agreed to surrender operating control of assets in the

Gulf of Mexico to accommodate U.S. national security concerns.
The Financial Problems of Nexen
On July 17, the Alberta Energy Regulator (AER) issued an environmental protection order to Nexen to contain
the spill, test for hydrocarbons and chlorides in the affected area, and develop a remediation plan to reclaim the
natural environment. Alberta’s chief energy authority said the spill posed no immediate risk to humans or wildlife
and had not leaked into any bodies of water.
In a new incident, on August 31, 2015, the AER ordered Nexen to shut down 95 pipelines in Alberta because
pipeline maintenance and monitoring were non-compliant. The new provincial government elected in spring
2015 emphasized its intention to hold the oil industry accountable for its environmental impact.
1, About the public debate of CNOOC ‘s acquisition of
Nexen
• There is the administrative distance between China and Canada.
socialistic country → democratic country
• Terrible reputation in international markets
• Some problems of safety and environment incidents

→ they are not sure whether CNOOC is okey
2, What is the best way for CNOOC to act
within that public debate?
• Don’t make promises that can’t be kept.
• The price of oil on the world

1-St Group, CNOOC

Uploaded by

Copyright:

Available Formats

1-St Group, CNOOC

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

1-St Group, CNOOC

Uploaded by

Copyright:

Available Formats

CHINA NATIONAL OFFSHORE OIL CORPORATION

AND STAKEHOLDER MANAGEMENT

1. Explain why CNOOC’s acquisition of Nexen in Canada generated more

Long Lake project

focus on locations where the extraction of oil was

The poor financial performance led to speculation that Nexen would

1. Canada has rich natural resources, energy

• CNOOC took over of Nexen on December 8, 2012.

• CNOOC agreed to surrender operating control of assets in the Gulf of Mexico to

95 Pipelines were requested to shut down On August 31, 2015

An explosion occurred in a hydrocracker facility On January 15, 2016

• CNOOC had faced intensive attention by Canadian stakeholders since 2012.

• Whether CNOOC’s international growth strategy itself needed to be adjusted.

(2) the employment level would be maintained for at least five

CNOOC (3) Nexen’s headquarters would remain in Calgary,

(5) CNOOC would continue Nexen’s social responsibility and

CNOOC agreed to surrender operating control of assets in the

• Terrible reputation in international markets

• Some problems of safety and environment incidents

• The price of oil on the world

You might also like