CNOOC Ltd. has no plans to boost the capital budget of its new subsidiary, Nexen Inc., but will focus on the company’s concerted effort to improve the performance of its troubled Long Lake oil sands project.
Two days after consummating the controversial $15.3-billion takeover, CNOOC chief executive officer Li Fanrong said Wednesday that the Chinese state-controlled enterprise will leave the running of the Calgary-based company in the hands of its current management, including CEO Kevin Reinhart who will also oversee CNOOC’s operations in the United States.
“We view Nexen as a very successful company with a huge potential resource base plus, most importantly, its management and human resources – the talented people and experienced management team,” Mr. Li said in an interview. “So everything basically will stay the same.”
CNOOC closed the deal on Monday after receiving approval earlier this month from the U.S. to take on Nexen’s Gulf of Mexico assets. Company executives would not say whether the Chinese oil company was required to divest assets there. The Canadian government approved the deal in early December after a stormy national debate over the wisdom of allowing a firm controlled by the Chinese government to take control of a significant Canadian oil company.
Mr. Li said he has full confidence in Mr. Reinhart and his Canadian team, although the parent company will guide larger budget decisions about how much to invest in Nexen‘s stable of assets.
“To maximize our business value, I’m totally counting on the headquarters in Calgary,” the CNOOC chief said.
“Every planned program will be continued,” he said. However, the two sides plan to do more homework. “We need to sit down with the management team to identify further capital expenses or priorities. We are going to do so.”
Mr. Reinhart insisted the company is now on track to resolve its problems at Long Lake, adding that Nexen and CNOOC have been working in partnership there since December, 2011, when the Chinese firm took over OPTI Canada, which had a 35-per-cent stake in the project.
“Our plans are not going to change” with regard to Long Lake, Mr. Reinhart said. “Money isn’t the problem. It was misunderstanding the geology initially – throwing more money at it right now wouldn’t be the solution.”
CNOOC’s bid for Nexen sparked a major policy change in Canada, prompting the federal government to overhaul the rules governing investments from state-owned companies.
Indeed, CNOOC’s bid for Nexen would have likely failed under the new rules, Natural Resources Minister Joe Oliver told reporters just days after the government approved the deal while concurrently rolling out new the new guidelines. Prime Minister Stephen Harper essentially banned takeovers by state-owned enterprises in the oil sands, save for exceptional circumstances that the government did not define. Ottawa, however, made it clear that it still supports joint ventures, which will allow cash to flow into the expensive oil sands industry.
Mr. Li said he understood and respected the concerns and the process, adding that the company now has plenty of room to operate its business and doesn’t expect to make further acquisitions in the foreseeable future.
“But we came here for commercial reasons and we made big commitments to Canadian governments and that will not jeopardize our future growth,” he said. He stressed the company’s commitment to Canada, though the precise undertakings made to Investment Canada – including the flexibility in the event of market downturns – remain confidential.
“To be international, we have to be local,” Mr Li said. “We have to participate in local social and economic developments while we satisfy our investment return.”
Mr. Reinhart added that it will now be up to the merged company to prove that the large investment by a state-owned enterprise is not a threat to Canada.
“While we didn’t want to engage in the debate publicly at the time, it is up to us to demonstrate that the Chinese are not somebody to be worried about, but somebody to be embraced here,” the Canadian executive said.