The Nexen Best Thing

The Chinese state-owned oil company, CNOOC Limited, has made a $15.1 billion friendly takeover bid for all of NXY Nexen Inc which is nearly twice what investors were willing to pay for company throughout most of last year and somewhat closer to what it was deemed to be “worth” in 2009. The dividend is $0.20 per share and the yield less than 1% and if, in fact, the Yuan is undervalued with respect to the dollar, the deal is still more expensive to CNOOC than other investors might discern.

Exhibit 1: (B)(N) NXY Nexen Inc – Price Chart

(Please Click on the Chart to make it larger if required. The Chart details are in previous Posts. Please see, for example, Alberta & Company, September 2012.)

From the Company’s website – Nexen Inc. is an independent energy company worldwide. The company’’s Conventional Oil and Gas segment explores for, develops, and produces crude oil and natural gas from conventional sources and operates in the United Kingdom, Canada and the United States, as well as offshore West Africa, Colombia, and Yemen. Nexen’’s Oil Sands segment develops and produces synthetic crude oil from the Athabasca oil sands in northern Alberta and its Shale Gas segment explores for and produces unconventional gas from shale formations in northeastern British Columbia. Nexen Inc. was founded in 1971 and is headquartered in Calgary, Canada.

We don’t know if the bid will succeed or not because the Canadian government is required under the legislation affecting foreign investment to determine whether or not the acquisition will provide a “net benefit” to Canada, which, one would think, could be plausibly decided in any way of choice.

But consider that the entire market capitalization of the S&P TSX Composite Index is currently about $1.6 trillion and is said to represent about 70% of the market capitalization of all the listed companies in Canada – say $2.5 to $3 trillion on a good day. That’s about two hundred Nexens and still less than 1/200th of the “capital” $800 trillion that is estimated to be floating around in the world economy looking for things to buy. Please see our recent Letter, Numbers 20:12, August 2012, for more on that.

Since most of what we have whether natural resources or manufactured goods and services can be bought, in World Terms, for less than a penny, one feels that it is a good idea to go with flow, so to speak, and develop things that the world wants.

For more information, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Two of our recent Letters, The Price of Risk and Maximising Shareholder Value (LOL), August 2012, may also be helpful and data may be obtained from us (for free) in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”.

Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability.

We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now.

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