Asian dealmaking livens up dim oil earnings season

Mon Jul 23, 2012 5:43pm EDT

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(Reuters) - A surprising $15 billion deal struck by China's CNOOC Ltd for a Canadian outfit operating in the backyards of the world's biggest oil companies could provide a key talking point as the majors report what will likely be subdued quarterly earnings.

Sustained production growth has long been elusive for the likes of Exxon Mobil Corp and Royal Dutch Shell Plc. CNOOC's proposed Nexen Inc takeover at a hefty 61 percent premium, announced earlier on Monday, sets an alarming benchmark for anyone seeking to buy their way into opportunities.

"The Chinese have been running all over the world buying reserves wherever they can find them," said Mike Breard of Hodges Capital Management in Dallas, noting it was CNOOC that was blocked several years ago from buying Unocal -- now owned by Chevron Corp.

"Apparently it's a lot easier for them to buy a Canadian company," Breard speculated, though he acknowledged the latest deal still needs regulatory approval.

Another Canadian company, Talisman Energy Inc, said on Monday it would sell 49 percent of its North Sea operations for $1.5 billion to Sinopec Corp.

Nexen assets include some in the UK, as well as in the Gulf of Mexico, Nigeria, and Canada's oil sands -- all areas of vital interest to the majors.

Breard said it would be interesting to find out what long-term oil price the Chinese used when doing their deals, since a recent drop in crude has weighed down the entire energy sector.

Brent crude averaged about $109 per barrel in the second quarter, down $9 from the first quarter and $8 below the second quarter of 2011. This will put a cap on earnings for all the largest oil companies, though Chevron has predicted a lift from its rebounding refining operations.

Some analysts highlighted the recent stall in their share prices as a useful entry point since the majors are working toward expanding their oil and gas output in the years ahead.

"A key facet of our positive sector thesis is that after a sustained period of disappointment, 2012-14 should see the sector return to production growth," wrote Lucas Herrmann of Deutsche Bank, noting that much of the current growth is driven by the return to activity in Libya.

Halliburton Co, the world's second-largest oilfield services company, said on Monday that Libya continued to recover in the second quarter -- a period when Halliburton got a big lift from its operations outside North America.

Halliburton, the leader in hydraulic fracturing services, also sees North American natural gas prices remaining low in the near term. They are especially a concern for Exxon and BP Plc given their hefty reserves of North American gas.

Shares of both Exxon and BP have underperformed over the past three months. Chevron shares, on the other hand, are up 7.5 percent in the same period. They were helped when the California company said a few weeks ago that refining would offset weaker oil and gas earnings, citing industry figures showing that U.S. West Coast refining margins are at their highest level in four years.

(Reporting by Braden Reddall in San Francisco, with additional reporting by Andrew Callus in London; editing by Matthew Lewis)

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