* CNOOC has ample cash but may still borrow to preserve liquidity
* Healthy market appetite for long-dated Asia corporate bonds
* Citi expected to win key mandate if CNOOC decides to borrow
By Charlie Zhu and Umesh Desai
HONG KONG, July 27 (Reuters) - China's CNOOC Ltd, the world's biggest energy explorer by market value, may borrow several billion dollars early next year to help fund its planned $15.1 billion cash bid for Nexen Inc, sources familiar with the matter said.
Until then, CNOOC is likely to seek short-term financing from its state parent CNOOC Group or government-run Chinese banks before replacing it with permanent facilities such as long-term bonds and loans, they said.
"They may do a combination of loans and bonds once the deal gets finalised. I don't think anything has been decided yet, but banks have started pitching," a source familiar with the matter said on Friday, declining to be identified because he was not authorised to publicly comment on the issue.
CNOOC launched China's richest foreign takeover bid yet on Monday, forcing Ottawa to decide whether security concerns outweigh its desire for foreign investment in its energy resources. The Chinese oil giant said it plans to finance the deal with internal cash and external resources.
A doubling of global oil prices since 2005 helped transform CNOOC into a major independent oil explorer and producer with a market value of $85 billion. ConocoPhillips is the No.2 E&P company with a market capitalisation of $68 billion, followed by India's ONGC.
CNOOC had $15 billion cash on hand at the beginning of this year. Technically, it does not need to borrow to fund the Nexen deal, bankers and analysts say.
But CNOOC would want to maintain sufficient cash on its balance sheet to prepare for future acquisitions and the unlikely event of a sharp drop in oil prices which would derail its 2012 capital spending plan of $9.3-$11 billion, they say.
"They may opt to borrow some long-term capital and repay some short-term debt for the purpose of maintaining a sound liquidity profile," said Kai Hu, senior credit analyst at rating agency Moody's.
CNOOC has $3.1 billion of debts becoming due in one year on its balance sheet as of end-2011, he said.
CNOOC officials were not immediately available to comment.
CNOOC and other Chinese state oil firms like Sinopec Group and CNPC issued bonds earlier this year, raising billions of dollars and drawing hefty demand as investors such as insurers piled into rare issues of long-dated quality Asian corporate bonds.
CNOOC, with a modest debt-to-equity ratio of 14.5 percent at the end of 2011, may issue 10-30 year bonds and take up 5-10 year bilateral or syndicated loans, bankers and analysts said, adding that the chances the Hong Kong-listed company would issue new shares is low.
Whether CNOOC would move ahead with the fund-raising also depends on market conditions in the first quarter of 2013, after the Nexen deal is closed. It may not tap the markets if the euro zone crisis deepens and borrowing costs surge, bankers say.
In 2005, CNOOC had to rely so heavily on state borrowings for its failed bid for U.S. explorer Unocal that it generated strong criticism from U.S. politicians that CNOOC was leveraging state subsidy to take on a U.S. private company.
CNOOC had planned to finance the $18.5 billion cash offer with $7 billion of long-term subordinated loans and bridge loans from its parent, $6 billion bridge loans from the Industrial and Commercial Bank of China , and a $3 billion bridge facility by Goldman Sachs and JPMorgan, which advised CNOOC on the Unocal bid. Only $3 billion would come from CNOOC's internal cash resources.
For the Nexen bid, with much less state financing, CNOOC should find it easier to win Canadian regulatory approval, bankers say.
If CNOOC decides to borrow, banks would be scrambling to win the coveted financing mandate.
Citigroup, which together with BMO Capital Markets advised CNOOC on the Nexen deal, would be in a strong position to win the lead financing mandates, bankers say.
"Citi as an M&A advisor should be the front runner to get any potential financing mandate," said a source with knowledge of the matter.
Citi and BMO declined to comment.
It is not known how much advisory fees Citigroup and BMO would pocket from CNOOC if the deal is completed successfully. Estimates by bankers not involved in the transaction ranged from $5 million to $20 million for each bank.