Harper government reviewing CNOOC takeover bid for Nexen

The Canadian Industry Minister Christian Paradis has confirmed the review has started of China National Offshore Oil Company's $15.1 billion takeover deal with Calgary-based Nexen Inc.

On Wednesday Paradis said in an e-mail::

"I can now confirm that CNOOC has filed an application for review of its proposed acquisition of Nexen under the Investment Canada Act and I am conducting a review of the proposed investment,"

During the initial period the review will take 45 days but the period can be extended if more time is required. The review must decide if the takeover is of net benefit to Canada. CNOOC has already promised as part of the deal that Calgary would be the headquarters of its North and Central American operations and will keep all of Nexen's employees and management. This along with an attractive price for Nexen shareholders will no doubt help to show a net benefit to Canada. The price offered per share was over 60 per cent higher than the price at which shares were trading the day before the deal.

If the deal is approved this would be the largest ever Chinese foreign acquisition. Foreign takeovers are seldom rejected but during the six years it has been in power two takeovers were rejected the largest being the U.S. 40 billion bid of the Anglo-Australian mining giant BHP Billiton for Potash Corp. The Saskatchewan government was strongly opposed to the deal.

Some politicians in the U.S.have objected to the Nexen deal including Senator Charles Schumer who wants to hold up the deal to pressure China on trade policies. Nexen holds dozens of U.S. oil leases in the Gulf of Mexico. In fact many of Nexen's holdings are outside Canada.

An article by Greg Weston shows that the Conservative government faces growing concerns among some that the large takeover would open the door for a shopping spree for other Canadian energy resources. China has ample funds and a huge appetite for energy resources.

Weston asks how the Conservative can say yes to Nexen and perhaps no to the next deal with the Chinese. Personally I fail to see the problem. Cases are decided on their individual merits. All sorts of U.S. takeovers have been approved but one was disapproved by the Conservative government because it was thought not to be a net benefit of Canada. Decisions are not precedents for future decisions and hence the shopping spree argument is not really cogent.

Weston points out that if the Chinese were allowed to takeover Canadian Oil Sands they would then have majority control of Syncrude which is a consortium that has received billions in Canadian tax dollars and produces about 15 per cent of Canada's total oil consumption. There is something a bit odd about this worry about foreign ownership. If foreign ownership is a worry Canada is a bit late. The Canadian Association of Petroleum Producers estimates that two-thirds of the oil sands are already controlled by foreigners.

Harper has been in China inviting the Chinese to invest some of their ample capital in Canada. They are now doing so and with attractive terms for Nexen a company whose balance sheet was far from attractive and faces many development problems.

Harper wants international investors to see his government as open to business. Polls show that Canadians are uncomfortable with a major Canadian oil company being sold to the Chinese. The Conservative Alberta government however also supports the deal and there has been no significant public outcry against the sale as there was when Potash Corp. in Saskatchewan was threatened with a foreign takeover.

There likely will be more attempts by China to acquire or purchase interests in other Canadian companies. Each move will simply have to pass the test of benefit to Canada. It is quite possible that some future deals will be blocked on the grounds they give too much control of our resources to a foreign country and the deal is not a net benefit to Canada.