CNOOC’s friendly $15.1-billion (U.S.) takeover of Calgary-based Nexen Inc. is its most ambitious foreign investment to date – and yet another sign of how China’s increasing investment clout is transforming global markets. It could also help establish Calgary as the hemispheric centre for Chinese energy investment.
However, before the merits of the deal can be assessed, Ottawa must define how it applies the “net benefit test,” which determines whether foreign takeovers larger than $330-million make a useful contribution to Canada’s economy.
Nexen, which has faced many logistical glitches at its Long Lake oil sands project in northern Alberta, is certainly not the most coveted company in the oil patch. But does this mean that Canada’s sixth-largest independent oil explorer isn’t a “strategic asset”? Ottawa blocked BHP Billiton’s $39-billion hostile takeover bid of Potash Corp., the world’s largest producer of fertilizer, on this basis, after pressure from Saskatchewan Premier Brad Wall.
The federal review of China National Offshore Oil Corporation’s proposed deal will consider its impact on employment and competition. In its efforts to court regulatory approval, the Chinese oil giant has promised to boost Nexen’s output by 2.7 per cent, list the company on the Toronto Stock Exchange and make Calgary the headquarters for its North American operations. CNOOC will also pay $27.50 per common share, a 61 per cent premium over the closing price on July 20. Is this enough to sweeten the pot? (In 2005, CNOOC tried to take over U.S. major Unocal, until intense political opposition soured the deal.)
Nothing can change the fact that CNOOC is led by a Communist dictatorship with a patchy human rights record. That will certainly make it harder to trumpet Alberta’s oil sands as “ethical oil.” Of course, CNOOC plans to run its operation as a commercial enterprise, not as a political arm of Beijing, and won’t own the resources outright, which belong to the Crown in the right of Alberta. But Canadian regulators should be mindful to ensure that CNOOC is held to the same high standards as any other energy company; the extraction and transportation of gas and oil have a huge impact on the environment.
Foreign investment is welcome and needed. But as an aspiring energy superpower, Canada must also ensure it isn’t viewed merely as a resource extraction opportunity. The public needs to understand under exactly what circumstances foreign buyers are permitted to take over the country’s key assets.
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