Chinese-Controlled CNOOC In Deep Doo-Doo In Canada -- July 23, 2015

This is being reported in The Wall Street Journal today:

China’s Cnooc Ltd. knew it was buying into trouble when it acquired Canada’s Nexen Inc. in 2013. It is now finding out just how much.

Weeks after the state-controlled oil company bought Nexen for $15 billion, its executives were in Calgary with a blunt message for the Canadian company, which had struggled for years to extract crude from the oil sands in the Alberta wilderness.

Two years later, Cnooc is still trying to fix Nexen, its troubles compounded by low crude prices.

And now Cnooc must explain an oil spill: This month, a pipeline Nexen installed last year ruptured, spilling nearly 31,500 barrels of a mixture of crude oil, wastewater and sand in northern Alberta.

The nice thing about this article is it helps me sort out the three big Chinese oil companies: CNOOC, Sinopec, and China National Petroleum Corp.

Back to CNOOC:

Buying Nexen appeared to fulfill the Chinese conglomerate’s three-decade mission to become a global oil company. Nexen gave Cnooc stakes in:

• Canada’s oil sands; 
• North Sea wells off Scotland; 
• Yemen; and, 
• an increased Gulf of Mexico presence.

Call me naive but every one of those appear to have been a bad investment:

• besides cost of extraction, oil from Canadian oil sands is landlocked with no Keystone XL
• recent news regarding UK off-shore wells is not good
• Yemen? what more needs to be said?
• Gulf of Mexico: with $50 oil, not economic and huge environmental risks

Not only that, but:

Nexen was the highest-priced of those acquisitions, and its Canada project shows how wrong some of those bets have gone. Its oil-sands project, called Long Lake, is one of the least productive oil-sands operations in northern Alberta—Canada’s oil-sands center—based on key benchmark measurements, according to BMO Capital Markets, Bank of Montreal’s investment-banking unit.

Back to the spill:

The spill [31,000 bbls] is among the largest onshore in recent years.

By contrast, a 2010 leak that flowed into Michigan’s Kalamazoo River was estimated at 20,000 barrels. Nexen’s spill has been contained to a field along the pipeline and hasn’t contaminated water sources.

The pipeline may have been leaking for up to two weeks before the leak was detected after it returned to service on June 29 following routine maintenance.

The leak shut production of some 9,000 barrels a day.

Nexen was already weighing on Cnooc’s bottom line. Cnooc has pledged to cut capital expenditures around 30% this year, after reporting nearly $700 million in impairment losses for 2014 that it blamed on operations in North America and the North Sea. Its energy-sales revenue fell 40% in the first quarter.