vii) Nexen (NXY.TO) Investment: 250 shares of Nexen (short) Date sold short sold:10/22/2012 Price when short sold: $24.00 Date covered: 10/26/2012 Price when covered: $23.36 Commission: $19.99
COI= ($24.00 x 250 ) - $19.99 = $5,980.01 Gain = ($23.36 x 250 ) + $19.99 = $5,859.99 Profit = $289.05 ROI= +2.05%
What is Nexen? Nexen is an oil and gas company based in Alberta, Canada, founded in 1969 under the name “Canadian Occidental Petroleum Ltd.” aka CanOxy, and was 80% owned by Occidental Petroleum, a Los Angeles-based oil company. It has operations located around the world, including the North Sea in Europe, Colombia, the Gulf of Mexico, and Alberta’s Athabasca Oil Sands. On 23 July 2012, the China National Offshore Oil Corporation (CNOOC) announced an agreement under which Nexen would be acquired by CNOOC. Total cash consideration of approximately US$15.1 billion would be paid for Nexen’s common and preferred shares, and Nexen’s current debt of approximately US$4.3 billion would remain outstanding.[1] The company is traded on the TSX and NYSE, with a currently stock price of $23.29/share and $23.52/share respectively.[2]
Why Nexen? On October 22nd, I saw the news – Nexen shares plunge following Petronas rebuff – written by Todd Korol, published in the Bloomberg. The article states that Nexen Inc. has already fallen by around 20% because of concern in its $15.1 billion purchase by Cnooc Ltd. may not go through following Canada’s rejection of a takeover bid for Progress Energy Resources Corp. Nexen’s stock has already dropped from $25.15 to $20.00 in just a few days, and it is continuing to drop in numerous countries. The Canadian government rejected a $5.23 bid by Petroliam Nasional Bhd. for Calgary-based Progress Energy on Oct. 19, minutes before the midnight review deadline. Industry Minister Christian Paradis said he wasn’t satisfied the bid is in Canada’s interest.[3] An analyst at Canaccord Genuity Corp. wrote in a note to clients “The odds of the proposed acquisition by Cnooc getting approval have fallen,” which negatively affects the company. He also said “We now give the deal over a 50 percent chance of closing versus our previous ‘high probability it closes’ view, with risk to the offering price.” [4] This news clearly gives a negative vibe to the company as it basically says that the company is sliding downwards in their future. This opens a great opportunity for an investment in shorting the company’s stocks. This news gives current investors a reason to lost hope in the company, as the company is very likely to lose a very expensive deal. The current investors would want to sell their current stocks from the company to avoid further losses, and future potential investors would unlikely to purchase stocks from the company because of the high risks. However I cannot expect too much of a return on investment on this investment if I do short the stock because the company has already suffered a large drop in price and they probably cannot drop much more. Nevertheless, I still believe that the chances of losing the deal with Cnooc Ltd. will drive the prices down, so I shorted 250 shares of the company and expected a 4% ROI. 1.http://www.nexeninc.com/Investors.aspx 2. http://ca.finance.yahoo.com/q?s=NXY.TO&ql=0 3. http://www.thestar.com/business/article/1275214--nexen-shares-plunge-following-petronas-rebuff 204. http://business.financialpost.com/2012/10/04/rio-tinto-cuts-costs-as-iron-ore-prices-fall-iron-ore-price-fall-speeds-up-rio-tinto-cost-cuts/