Canada gives CNOOC green light to buy Nexen

Ottawa has approved China's largest overseas energy acquisition in the country, but has also imposed tighter restrictions on similar takeovers in future. Chinese State-owned CNOOC Ltd will buy Canadian oil and gas producer Nexen Inc in a $15.1 billion deal.

Canadian Industry Minister Christian Paradis said on Friday that the government has approved the acquisition by China's largest offshore oil and gas explorer CNOOC, ending the anxiety over foreign investments in Canadian's energy and resources sector prevalent in the last months.

The deal had been reviewed twice, over public concerns that the acquisition would compromise Canada's energy security because the buyer is a Chinese State-owned company.

However, in the latest statement, the Canadian government said CNOOC's Nexen bid will bring "net profit" to the country under the current legal framework and that it is satisfied with CNOOC's commitments on transparency, management and capital investment for the transaction.

"It is a breakthrough for China's overseas acquisitions and a good sign for Chinese companies, in terms of expanding their businesses abroad," said Liao Na, information director at energy consultancy ICIS C1 Energy.

Chinese investments in North America and Europe, especially in the energy and resources sector, have been questioned for a long time, she said.

"Ten years ago, I suggested that Chinese companies should buy oil companies overseas instead of importing oil," said Younghoon David Kim, who was elected co-chair of the World Energy Council. "This is the right track. However, Chinese companies often meet with prejudice in the overseas energy market."

Canadian Prime Minister Stephen Harper said the government has been making efforts to reduce ownership in economic sectors, but the energy sector is being bought and controlled by foreign governments instead.

So, although China has got approval for the Nexen deal, it is not the beginning, but the end of the trend, he said. The Canadian government will impose stricter standards for foreign state-owned companies to acquire Canadian companies.

But Liao interpreted Harper's statement as a move to appease domestic objections, and felt there would always be exceptions in the free market.

"We will meet real problems," she said. "The cultural gap, foreign legal issues, different management styles are factual problems Chinese companies will face in their overseas expansion."

She said currently Chinese energy companies still focus mainly on Africa and South America.

Canada also allowed a smaller foreign takeover on the same day, in which the Malaysian state-owned company Petronas bought Progress Energy for $5.2 billion. The deal had been previously blocked, again raising worries that the CNOOC bid might be affected.

Jeremy South, global mining business adviser at Deloitte, said the relationship between the Chinese and Canadian governments would be a crucial factor to the deal's success.

Both countries signed the Canada-China Foreign Investment Promotion and Protection Agreement in September during the Asia-Pacific Economic Cooperation forum, a move to boost bilateral investment and enhance bilateral relationship.

Harper had said at the time that the country would be open to investment from China as long as the Asian country was willing to reciprocate.

Calgary-based Nexen explores western Canada's oil-rich tar sands and operates production rigs in the North Sea, the Gulf of Mexico and Nigerian waters. According to data provider Platts, Nexen is the operator of the 220,000 barrels a day Buzzard field in the UK's North Sea.

The takeover will add more than 70 million barrels a year to CNOOC's total output. In October, CNOOC raised its 2012 net production target to 245 million barrels, an increase of 1.5 percent year-on-year.

Wang Yilin, chairman of CNOOC, said the deal will be completed by the end of the year. Currently, the deal is undergoing a regulatory review in the United States, with regards to Nexen's assets in the Gulf of Mexico.

The acquisition will help China lower risks when energy shortages become an urgent global problem, said Lin Boqiang, director at the China Center for Energy Economics Research at Xiamen University.

dujuan@chinadaily.com.cn

Background:

Timeline of CNOOC's bid for Nexen

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