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Announcement:

Moody's affirms CNOOC's Aa3 rating after it agrees to acquire Nexen

 The document has been translated in other languages

24 Jul 2012

Approximately USD4.5 billion in debt securities affected

Singapore, July 24, 2012 -- Moody's Investors Service has affirmed the Aa3 issuer rating and senior unsecured bond rating of CNOOC Ltd (CNOOC).

Moody's has also affirmed the Aa3 issuer rating of CNOOC's parent -- China National Offshore Oil Corp (CNOOC Group).

The ratings outlook is stable.

This affirmation follows CNOOC's announcement on 23 July 2012 that it has entered into a definitive agreement to acquire Nexen Inc (Baa3, on review for upgrade) for a cash consideration of approximately USD15.1 billion.

CNOOC plans to fund the acquisition by existing cash-on-hand and external financing.

RATINGS RATIONALE

"Although CNOOC Group's standalone credit profile is likely to be weakened due to the increase in debt required to fund this material transaction, its final Aa3 rating factors in the very high level of expected support from the Chinese government (Aa3, positive), due to the group's strategic importance to China's energy security and its 100% government ownership," says Simon Wong, a Moody's Vice President and Senior Analyst.

Moody's considers CNOOC's rating as closely linked with its parent and which in turn, could also receive parental uplift because of its status as the core operating subsidiary of CNOOC Group, and the expectation that government support could be passed through to it, via its parent.

The acquisition, once finalized, will strengthen CNOOC's position as one of world's largest independent exploration and production companies, with an expected 30% increase of proved reserve and 20% increase in production.

The acquisition will also improve CNOOC's portfolio diversification.

"After the transaction, CNOOC's offshore reserves will account for 44% of its global total, compared to its current level of around 29%," adds Wong, also Moody's International Lead Analyst for CNOOC.

"CNOOC has a track record of expanding its reserves and production through overseas M&As. The current ratings have already factored in its high acquisitive appetite and relevant degree of event risk," says Wong.

"On the other hand, while CNOOC can fund the majority of the acquisition cost with its cash-on-hand, it may incur additional debt and Nexen will have approximately USD4.3 billion indebtedness outstanding after the acquisition," continues Wong.

Moody's therefore expects that its adjusted debt/average daily production will rise to USD13,000-USD14,000/boe, and that RCF/total debt will decrease to around 80%-100% after the transaction.

"Such a financial profile is weak for its standalone credit profile," says Kai Hu, Moody's Local Market Analyst for CNOOC.

"Moreover, the size of the deal implies a certain level of execution risk, such as the integration challenges and its ability to retain Nexen's management and operating expertise," adds Hu.

If the transaction goes ahead in its current form, CNOOC's standlaone rating would be weakened, which in turn would pressure CNOOC Group's baseline credit assessment (BCA) of 5 -7, which is equivalent to Moody's global rating scale of A1- A3.

Nevertheless, CNOOC Group's final Aa3 rating will be maintained based on the very high level of support from the Chinese government under the joint default analysis approach for government related issuers.

Such high support reflects its increasing strategic importance in securing China's energy supply, particularly through the development of China's offshore oil & gas reserve and overseas resources acquisitions.

"We note that uncertainties remain for the transaction, as: (1) completion of the acquisition is subject to regulatory approval from authorities in Canada, the EU (if required), the US and China; (2) the final financing plan has not yet been finalized; (3) 2/3 vote cast by Nexen's existing shareholders, even though the transaction has received the unanimous approval of Nexen's and CNOOC 's Boards of Directors,"says Hu.

Moody's will continue to monitor the progress of the transaction and the financing plan. Any material revision of the acquisition price or terms may warrant a re-visit of the rating and outlook.

The principal methodology used in rating CNOOC Ltd and China National Offshore Oil Corp was the Global Independent Exploration and Production Industry Methodology published in December 2011 and the Government-Related Issuers: Methodology Update published in July 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

CNOOC Ltd, headquartered in Hong Kong, is an oil and gas exploration and production company with operations mainly concentrated in offshore China. It is 64.45%-owned by China National Offshore Oil Corp.

China National Offshore Oil Corp is an integrated Chinese energy company that is wholly owned by China's State Council and ultimately the PRC. The company has substantial interests in its listed subsidiaries, which are engaged in exploration and production and the provision of oil services. It also has interests in other downstream businesses, including refining and petrochemicals.

Nexen Inc. is a Calgary, Alberta based oil & gas exploration and production company with 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.

The Local Market Analyst for this rating assignment is Kai Hu, +86 (10) 6319 6560.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Moody's considers the quality of information available on the rated entities, obligations or credits satisfactory for the purposes of issuing these ratings.

Moody's adopts all necessary measures so that the information it uses in assigning the ratings is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Simon Wong
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308

Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308

Moody's affirms CNOOC's Aa3 rating after it agrees to acquire Nexen
No Related Data.
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