Total, the French oil and gas group, is thrashing out the details of a possible bid worth up to C$20bn (US$16.1bn) for Nexen (NYSE: NXY - News) , the mid-sized Canadian oil company.

The French company, which has been stalking Nexen for many years, has lined up a financing package. However, Total (NYSE: TOT - News) could yet walk away, and one company insider said it would not make a hostile bid.

One source with knowledge of the company said Total's board had met on Tuesday to consider an offer of up to C$38 a share, valuing Nexen at up to C$19.7bn.

Nexen said on Tuesday that it had not received a bid approach, and that such a move could lead it to launch an auction to attract other bidders.

The company has attractive assets in the North Sea, the US, Canada and Yemen, and with about 250,000 barrels of oil equivalent per day of production is large enough to make a material difference to Total or other oil majors. It is also highly cash-generative.

The plunge in the price of oil, which touched new lows of aboutbelow $47 on Tuesday and the difficulties faced by smaller companies in raising funds are expected to create many opportunities for larger and financially stronger groups to acquire companies and assets at attractive prices.

Shares in Nexen soared yesterday after details of the possible offer were reported by the FT Alphaville website, rising 33 per cent at one point and remaining up about 25 per cent.

The shares traded yesterday afternoon at about C$27.

To fund a possible offer Total has secured a financing package of €7.5bn ($9.5bn) from five banks: Société Générale, HSBC, BNP Paribas, RBS and Crédit Agricole. Sources said that Total had already paid a commitment fee at a cost of €130m. It is being advised by Société Générale.

Total looked at a deal last year but the board concluded that Nexen was too expensive. Since June, however, shares in Nexen have fallen sharply, losing two-thirds of their value at their lowest point.

However, one potential snag in the deal is Nexen's exposure to the high-cost area of Canadian oil sands. It owns a 7.23 per cent stake in Syncrude, the world's largest producer of crude from the region.

John Parry of IHS Herold, the energy research company, said that the price of C$38 per share would look high based on an oil price of $50 per barrel, "but it is probably a fair price if you expect oil to go back to the $70-$80 range".