Canada extends Nexen review
Canada’s federal government has extended the review of China National Offshore Oil Corporation’s (CNOOC) proposed C$15.1 billion ($15.4 billion) takeover of Nexen, amid growing political criticism of the deal
Canada’s industry department said it needs a further 30 days to decide if the deal is in the public interest. It now has until 11 November to report on the planned takeover. All takeovers exceeding C$331 million must pass a “net benefit” test under Canadian law.
Extensions are not unusual, but approval is not guaranteed. Canada’s government has previously used the legislation to block other high-profile deals and in 2010 thwarted BHP Billiton’s C$40 billion offer for Potash, a potash producer, on the grounds that the mineral, used in fertiliser, is a vital national resource.
Whether it will apply the same standard to Canada’s oil sands is under debate. Nexen holds up to 6 billion barrels of oil-sands resources across 300,000 acres in the Athabasca region of northern Alberta. It works in partnership with CNOOC at the 72,000 b/d Long Lake in situ oil-sands project near Fort McMurray.
But polls suggest public opinion on the deal is roughly split amid concerns over the level of government influence over China’s state-run energy companies. Though CNOOC is publicly traded in New York and Hong Kong, and operates under Western business standards, some see it as an instrument of China’s energy policies.
The mistrust was further heightened after a US House Intelligence Committee report suggested Chinese technology companies were implicated in corporate espionage. Although CNOOC was not implicated, the allegations prompted Canada’s prime minister Stephen Harper to provide assurances that the Nexen deal would be scrutinised from a national security, as well as economic, perspective.
Harper told reporters that Canada’s “relationship with China is important. At the same time, it’s complex ... because the Chinese obviously have very different systems than we do, economic and political systems, and that’s why obviously some of these particular transactions raise concerns.”
The Canadian oil industry needs $650 billion over the next decade to fund growth and Ottawa is courting foreign investment from countries such as China to provide capital for ambitious plans to more than double oil production to 6 million barrels per day (b/d) by 2020.
But an increasingly sceptical public is worried the Nexen deal will lead to a wave of takeovers of Canadian-controlled companies, especially in the energy sector.
“We will ensure as a government that we have not only a growing relationship with China, but a relationship with China that is in Canada’s best interests,” Harper added. “There’s a national-security dimension to this relationship that we take very seriously.”
The delay pushes approval back to 11 November, after the US presidential elections. It could be delayed further at the request of either participating company or shareholders. Nexen’s shareholders formally approved the takeover at a special meeting in Calgary on 20 September.
Despite some opposition to the takeover, the plan is unlikely to be blocked. The majority of Nexen’s assets are located in the US Gulf of Mexico, the UK North Sea and West Africa, not in Canada.
CNOOC gained an unlikely supporter in the form of Canada’s former central bank governor David Dodge, who told Reuters opposition to the deal is “anti-Chinese”.
“They are willing to pay, way overpay, how can that not be in our interest?” he said, following an appearance at Carleton University in Ottawa.