CNOOC says Canadian oil glut hits recently acquired Nexen unit

Fri Mar 22, 2013 3:33pm EDT

* Canadian crude prices suffering amid Alberta glut

* CNOOC finally completed deal for Nexen last month

* CNOOC says integrating Nexen will pose challenges

By David Ljunggren

OTTAWA, March 22 (Reuters) - Chinese state-owned energy company CNOOC Ltd, which last month completed a $15.1 billion takeover of Canada's Nexen, has been hit by a Canadian oil glut that is depressing prices for Canadian crude, a senior executive said on Friday.

Vice President Fang Zhi said CNOOC saw Nexen as an eventual secure supply of energy for China but also wanted to secure the highest price possible for its oil in markets currently accessible.

As output has surged, overtaxed pipeline capacity to U.S. markets from the oil-rich province of Alberta has been a major factor in driving down the price of Canadian heavy crude, cutting into bottom lines of producers.

Western Canada Select heavy oil sold for more than $40 a barrel below the price of U.S. benchmark West Texas Intermediate in January. Prices have improved, but analysts and traders say the fundamentals remain negative.

"As a producer, we would very much like to get rid of the discount in price that we are all suffering," Fang told a conference on China arranged by the Canadian International Council think tank.

CNOOC finally completed its contentious takeover of Nexen on Feb. 25, some seven months after China's largest-ever successful foreign takeover was announced.

The bid caused unrest inside Canada's ruling Conservative Party. Some legislators opposed the idea of a Chinese state-owned company buying up Canadian energy assets.

Ottawa approved the deal only after making clear it would not allow foreign state-owned firms to build up dominant positions in the Alberta tar sands.

"As a commercial organization, we typically would pursue the highest price for our products in the open market but we do realize that there is a need ... for energy security as well as diversification," Fang told the conference.

"We very much look at Canada as a potentially stable source of supply."

The Canadian government's desire to boost oil exports to China hinges on projects such as Enbridge Inc's proposed Northern Gateway pipeline from Alberta to the Pacific Coast. That pipeline may never be built, given heavy environmental and aboriginal opposition.

TransCanada Corp's proposed Keystone XL pipeline from Alberta to Texas, which would also ease the oil glut, still needs Washington's approval and that is not guaranteed.

Fang said given the likely growing world thirst for oil, Canada need not be too worried about finding markets.

"We are looking at a world where some 3 billion people are striving for industrialization ... You probably do not have to really worry about the demand (for Canadian energy products)," he said.

As part of CNOOC's undertakings to satisfy the Canadian government that the deal would have a net benefit to the country, it pledged to keep all Nexen's staff.

Fang said there were some challenges integrating the two firms "such as cultural differences and even the time difference between Calgary and Beijing".

He added: "There will be a grace period but nothing is insurmountable."