Prime Minister Stephen Harper has welcomed investment from Chinese and other state-owned companies in Canada’s vast oil and gas resources. But his government is giving no answer to the question that is suddenly on the minds of investors and energy executives: How much foreign control would be too much?
China’s CNOOC Ltd. thrust the issue back onto the agenda with its $15.1-billion bid to acquire Nexen Inc., one of the largest Canadian-controlled companies operating in the oil sands. The proposed acquisition – which has been endorsed by Nexen’s board – must be approved by Ottawa’s Investment Canada review agency and Mr. Harper vowed on Tuesday that it would be subjected to a rigorous review.
“Under the law, the transaction must be of net benefit to the country, and the government will make sure that investment is clearly scrutinized to ensure that it is of net benefit if it is approved,” the Prime Minister said Tuesday in Oshawa, Ont.
“Nothing should be assumed in terms of the government’s decision, one way or the other, on that transaction.”
But the rules about what constitutes a “net benefit” are still vague -- and the Nexen deal highlights the fact that Mr. Harper and his ministers have failed to clarify them despite years of wooing Asian investors, and a promise in 2010 by then-Industry Minister Tony Clement to be more explicit about how the government will evaluate foreign takeovers.
That has left potential investors guessing about how many Canadian-controlled oil and gas companies the government is prepared to see fall into foreign hands, and how big a domestic producer they might target.
Many analysts are expecting Ottawa will give its blessing to the CNOOC-Nexen deal, and that the approval will open the doors for well-financed state-owned companies like PetroChina and Sinopec to start shopping for cash-limited but resource-rich Canadian independents. Companies like Talisman Energy Inc., Athabasca Oil Corp., and MEG Energy Corp. are tempting targets whose acquisition could would have a higher likelihood of getting through the political minefield in Ottawa, while an acquisition of a larger producer like Cenovus Energy Inc. or Canadian Natural Resources Ltd. would set off alarm bells.
Critics have argued Ottawa needs to clarify Investment Canada’s net benefit test so foreign investors know what is expected of them, and what targeted companies would be considered off limits -- especially after the Harper government’s decision two years ago not to allow BHP Billion Ltd. to take over Potash Corp. of Saskatchewan Inc.
But drawing a line in the sand would be dangerous and counter-productive, said Jim Gray, a veteran oil executive and corporate director.
“I come down on the side that, yes, there should be a policy, on a case by case basis, where there should be individual assets that are judged to be core Canadians assets that have to be preserved,” Mr. Gray said.
“But you have to be careful about drawing a line in the sand. Just like the sands in the Sahara, I visualize them moving in the wind, and the sands shift.”
Former federal industry minister David Emerson – who served under both Liberal and Conservative governments – said the Ottawa needs flexibility to judge each deal on its merits, given the conditions that exist at the time. A foreign acquisition of a large independent Canadian oil company might be acceptable if there are several others still operating, but the same deal might be rejected if it came after a spate of takeovers.
But both Mr. Gray and Mr. Emerson insist Ottawa must protect a critical mass of Canadian-controlled oil companies to maintain head office jobs, support research and corporate charitable giving, and simply maintain Canada’s presence in a major industry that is so important to the country’s economy.
“The question is, where do you draw the line and how do you enforce the line you have drawn,” Mr. Emerson said. “Beyond a certain threshold, hollowing out [of the corporate sector] is not good for the country.”