CNOOC, Nexen agree to merge

Nexen

CNOOC Ltd. and Nexen Inc. have entered into a definitive agreement under which CNOOC Limited will acquire all of the outstanding common shares of Nexen for US$27.50 per share in cash.

The purchase price represents a premium of 61% to the closing price of Nexen's common shares on the NYSE on July 20, 2012, and a premium of 66% to Nexen's 20 trading-day volume-weighted average share price. Total cash consideration of approximately US$15.1 billion will be paid for Nexen's common and preferred shares, and Nexen's current debt of approximately US$4.3 billion will remain outstanding. The transaction, which will be completed by way of a plan of arrangement, is expected to close in the fourth quarter of 2012.

The acquisition of Nexen expands CNOOC Limited's overseas businesses and resource base in order to deliver long-term, sustainable growth. Nexen will complement CNOOC Limited's large offshore production footprint in China and extends CNOOC Limited's global presence with an asset base in many of the producing regions - including Western Canada, the UK North Sea, the Gulf of Mexico and offshore Nigeria - focused on conventional oil and gas, oil sands and shale gas. In addition, Nexen management's current mandate will be expanded to include all of CNOOC Limited's North American and Caribbean assets.

Nexen had average production of 207 mboe/d (after royalties) in Q2 2012. In accordance with SEC rules, Nexen had 900 mmboe of proved reserves and 1,122 mmboe of probable reserves as of December 31, 2011. In addition, as of December 31, 2011, Nexen had best estimate contingent resources of 5.6 billion boe in accordance with Canadian National Instrument 51-101, predominantly in the Canadian oil sands.

The transaction will be funded by CNOOC Limited's existing cash resources and external financing.

Wang Yilin, cairman of CNOOC Limited said, "The acquisition reflects our strong belief in Nexen's rich and diverse portfolio of assets and world-class management and employees. This is an exciting opportunity for us to build on our existing joint venture relationship with Nexen in Canada, and to acquire a leading international platform in the process. We strongly believe that this acquisition will create long-term value for CNOOC Limited's shareholders."

CNOOC Limited has been a significant investor in Canada since 2005, with total capital invested of C$2.8 billion. These investments include a stake in MEG Energy Inc., OPTI Canada Inc. (Nexen's partner in the Long Lake steam assisted gravity drainage production facilities and Upgrader), and a 60% interest in Northern Cross (Yukon) Ltd.

Following completion of the transaction, CNOOC Ltd. plans to establish Calgary as the head office of its North and Central American operations. This head office will be responsible for operating and growing Nexen's assets in North and South America, Europe and West Africa and CNOOC Limited's portfolio in Canada, the US and Central America.

Li Fanrong, CEO of CNOOC Ltd., said, "We believe the transaction provides a number of significant benefits to Canada and to Nexen. CNOOC Limited looks forward to welcoming all of Nexen's employees to its worldwide team, and we will clearly benefit from having Nexen employees play an important part in our international business growth platform. In addition, the transaction is a reflection of our disciplined M&A strategy which is focused on resources, risk and return."

The definitive agreement between CNOOC Limited and Nexen provides for, among other things, a non-solicitation covenant on the part of Nexen, subject to customary "fiduciary out" provisions, that entitles Nexen to consider and accept a superior proposal and a right in favor of CNOOC Limited to match any superior proposal. If the definitive agreement is terminated in certain circumstances, including if Nexen enters into an agreement with respect to a superior proposal or if the Board of Directors of Nexen withdraws or modifies its recommendation with respect to the proposed transaction, CNOOC Limited is entitled to a termination payment of US$425 million.

In addition, under the terms of the transaction, if approved by the holders of preferred shares in a separate class vote, CNOOC Limited will acquire the outstanding preferred shares of Nexen for a purchase price of C$26.00 per share in cash, plus any dividends accrued but unpaid at the time of closing. However, closing of the arrangement is not conditioned upon approval by the holders of the Nexen preferred shares.

Completion of the transaction is subject to customary closing conditions, including court approval of the arrangement; approval of two-thirds of the votes cast by holders of common shares in person or by proxy at the meeting; and applicable government and regulatory approvals by, among others, the relevant authorities in Canada, the U.S., the EU (if required) and China. A termination payment of US$425 million will be payable by CNOOC Limited to Nexen should the transaction not close for China regulatory reasons.

CNOOC Limited's financial advisors are BMO Capital Markets and Citigroup Global Markets Inc. CNOOC Limited's legal advisors are Stikeman Elliott LLP and Davis Polk & Wardwell LLP. Nexen's financial advisors are Goldman Sachs and RBC Capital Markets and its legal advisors are Blake Cassels & Graydon LLP and Paul, Weiss, Rifkind, Wharton and Garrison LLP.  Legal advisors to the Nexen board are Richard A. Shaw Professional Corp. and Burnet, Duckworth & Palmer LLP.

Nexen is an independent, Canadian-based global energy company, focused on three growth strategies: oil sands and shale gas in Western Canada and conventional exploration and development primarily in the North Sea, offshore West Africa and deepwater Gulf of Mexico.

CNOOC Limited is China's largest producer of offshore crude oil and natural gas and one of the largest independent oil and gas exploration and production companies in the world. CNOOC Limited primarily engages in exploration, development, production and sales of oil and natural gas and has four major producing areas in offshore China as well as oil and gas assets in Asia, Africa, North America, South America and Oceania. As of December 31, 2011, CNOOC Limited owned net proved reserves of approximately 3.19 billion boe, and its net production averaged 909,000 boe/d.

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