SaskOil from Saskatchewan government owned to Chinese government owned

SaskOil began as a provincially owned Saskatchewan corporation in 1973. Privatization began in 1986. Eventually SaskOil assets became Canadian Occidental Energy (CanOxy) and finally Nexen in 2000. Chinese state owned CNOOC bought Nexen in July 2012.

 Saskatchewan Oil and Gas Corporation or SaskOIl as it was commonly called was created by the New Democratic provincial government of Allan Blakeney in 1973. Blakeney also created a crown corporation in the potash industry. In spite of Blakeney's pursuit of government ownership in oil and potash development Blakeney's leadership of the party was regarded as a victory for the establishment against the Waffle Group within the NDP who were campaigning for an independent socialist Canada. The Waffle group even had their own manifesto the Waffle Manifesto.

 The Blakeney government saw SaskOil as a means to facilitate government investment in Saskatchewan's oil and gas resources. The increase in oil prices in the period also encouraged the government to help fund its own programs through income from the developments. The corporation provided a means for the government to gain expertise and knowledge in the oil and gas development industries. In the seventies the company grew rapidly and took over existing companies as well. By 1976 SaskOil was producing 6 per cent of total Saskatchewan oil. However, it also also acquired properties in other areas of western Canada. SaskOil also had a research and development branch. With the start of privatization in 1986 these functions were transferred to the Saskatchewan Research Council. Profits from oil are for private companies. Costs for research are socialized.

 Privatization began in 1986 under a Conservative government. In 1996 SaskOil became Wascana Energy. In 1997 Canadian Occidental Petroleum bought Wascana Energy and the last government shares were sold off with the sale. Occidental merged all its Canadian assets under the corporate name Wascana Energy. Occidental in turn was taken over by Nexen and renamed Nexen Canada.

 In July of this year CNOOC bought Nexen for 15.1 billion U.S. although the deal still needs to be approved by the federal government. The history of SaskOil gives an interesting glimpse of the history of capitalism in Saskatchewan. During the seventies there was still a powerful movement towards socialism in Saskatchewan as exemplified by the Blakeney government's strong support for a government owned and financed oil development company. By 1986 the trend had turned toward privatization. Even when the NDP returned to power it did not return to the Blakeney nationalization policies. Eventually Sask Oil became part of Nexen a global player in the oil patch but with headquarters in Calgary Alberta.

Now as communist China itself has become a global capitalist player the powers that be see the Nexen takeover as a way for Canada to diversify markets and sources of investment. Of course Saskatchewan will not receive the profits of CNOOC although no doubt it will reap some benefits. First and foremost the Chinese will benefit. However, CNOOC promises that the new company will be listed on the Toronto Stock Exchange so global investors will also participate. I will watch with interest as the Harper Conservative government gives his blessing to a takeover of an Alberta based big oil company to a communist Chinese state owned company!

The takeover may be blocked. The U.S. is none too happy with the takeover. It will be interesting to see what position the Conservative government of Alberta takes. Nevertheless Harper seems to be committed to diversifying markets for Canadian energy resources and also diversifying investment sources. CNOOC has gone to considerable lengths to make the deal attractive for Canada. Another article on SaskOil can be found here.

Canadian oil firm Nexen accepts takeover bid of over 15 billion U.S. from Chinese oil firm

Calgary based oil producer Nexen approved a takeover bid of $15.1 billion U.S. by Chinese state-owned oil producer CNOOC Ltd. The price per share would be $27.50 a full two thirds higher than the average price over the last twenty days. Nexen is the 12th largest energy producer in Canada with an output of about 213,000 a barrel oil equivalent per day. Nevertheless the company has not been doing that well of late. 

The company has a global presence. North Sea production has just been hit by a new UK tax. Drilling in the Gulf of Mexico was delayed by the huge BP oil leak. It was also forced to abandon a project in Yemen. Even in Canada at Long Lake planned output has not been reached. In the second quarter net income for Nexen fell to only $109 million, a decline larger than analysts predicted. The company earned just 20 cents a share in the second quarter down form a year earlier. Never mind the gloom, China needs oil and is willing to pay a premium price to guarantee a secure source of supplies.

 The troubled Long Lake project provided China the first stage of the later bid. Back in November of last year CNOOC bought OPTI Canada Inc. a company that held a 35 per cent stake in the Long Lake project. CNOOC has already spent 2.8 billion in Canada. China has been moving cautiously with takeovers after a failed takeover bid for UNOCAL corporation in 2005. No doubt there will be considerable debate about the Nexen takeover. The deal will have to pass through a process of evaluation under Canadian foreign ownership rules

  CNOOC said it would retain the existing staff and management and also make Calgary the headquarters for North and Central American operations. The company also promised it would list shares on the TSX and fund oll sands research at Canadian universities. All of these moves may help the company gain approval for the takeover. Already a number of Asian companies have invested in Canadian energy projects. Athabasca Oil Sands Corp. earlier this year sold a 40 per cent interest in two projects to PetroChina Co. Last fall Sinopec bought Daylight Energy Ltd. for a price tag of $2.2 billion U.S. The giant Malaysian firm Petronas bought Progress Energy Resources for $5.5 billion in June of this year.

 Prime Minister Stephen Harper is very much pro-business. Harper has often been a critic of China but of late he seems to be interested in tapping into Asian markets and pools of Asian capital to help develop Canadian resources. Canada has traditionally been a supplier first and foremost for the U.S. market. NAFTA cemented this relationship. However Harper seems to have realized that diversifying markets and sources of investment would be beneficial for Canada. The Nexen deal will be a test of these policies. 

The Nexen takeover must be approved by two thirds of shareholders. It is subject to an almost half a million dollar break fee. Not all foreign takeovers are approved. When BHP Billiton of Australia tried a hostile takeover of Saskatchewan-based Potash Corp the deal was eventually blocked by considerable resistance from Potash management and the Saskatchewan premier. Some corporations are supposedly strategic assets for Canada. Perhaps Nexen will be another strategic asset although the government has not yet defined what the term means.

 Harper is likely to receive the most pressure to block the bid from the U.S. The U.S. will not look kindly on its Asian competitor securing supplies of scarce resources from its northern neighbor. The question is whether business prevails over politics or perhaps whose business interests prevail. For more see this article