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The CNOOC booth at the 2021 China International Fair for Trade in Services in Beijing on Sept. 4, 2021.FLORENCE LO/Reuters

A decade ago, Conservative prime minister Stephen Harper’s government turned itself inside out for several months. It wanted to be seen as pro-foreign investment, but also a protector of Canada’s biggest energy bounty – the oil sands.

In the end, Mr. Harper allowed China’s CNOOC Ltd. CNU-T to acquire Nexen Inc., a struggling oil and gas producer, for a hefty US$15.1-billion. But he also imposed a new rule. Alberta’s oil sands were of such strategic national importance, this would be the last time a foreign state-owned enterprise could buy up control of a project.

It did the trick. The deals died down, but it may not have been an issue anyway, as foreign oil companies withdrew from northern Alberta in the years after.

China’s top offshore oil and gas producer preparing Western retreat over sanctions concern, sources say

Today, China no longer covets the oil sands as it seeks to reduce risks associated with doing business in countries where it has been embroiled in diplomatic and trade battles. Reuters reported on Wednesday that CNOOC is preparing to jettison its assets in Canada, the United States and Britain, largely acquired in the Nexen deal, as China fears sanctions by those governments.

It shows in particular how Canada’s strategic energy resources have, in Beijing’s view, gone from premium assets to liabilities in just 10 years.

The Nexen takeover has become the Canadian oil patch’s own version of the Bonfire of the Vanities movie, the critical and commercial flop that became synonymous with exorbitant cost and poor return. It also marked the end of an era of excess.

CNOOC’s plan, according to the report, is to take advantage of high oil and gas prices, and sell the assets back to domestic companies as their governments try to make up for Russian supplies that are now off limits because of President Vladimir Putin’s invasion of Ukraine.

For CNOOC, assuming it can find buyers, a sale would close a relatively short chapter in which it first sought reserves at almost any price, and wound up with assets that underperformed in countries in which it was never quite comfortable operating.

Reuters noted that relations between Beijing and Western governments have been strained over human-rights and other issues. Indeed, China’s detention of Canadians Michael Spavor and Michael Kovrig for nearly three years on dubious charges inflamed tensions with Canada. More recently, Russia’s invasion of Ukraine has worsened China’s relations with the West as it refuses to condemn the aggression.

The assets that would go on the block include North Sea oil fields, U.S. shale plays, and properties in the Gulf of Mexico and in Canada, where it operates the Long Lake oil-sands project and co-owns another called Hangingstone. Together, they all produce around 220,000 barrels of oil equivalent a day, according to the report.

Current diplomatic strains aside, China has made an about-face on its view of the oil sands. Before the Nexen deal, state-owned companies including Sinopec, China National Petroleum Corp. and PetroChina, were given the edict to seek out resources around the world to help fuel China’s massive and growing economy. The oil sands were a major target, and money seemed to be no object.

Starting in the early 2000s, Chinese companies bought up stakes in producers large and small, and paid premium prices to gain ownership shares in the Syncrude Canada oil-sands project. In total, China’s Canadian energy shopping spree topped $30-billion.

Nexen had struggled to meet its production and financial targets, and faced repeated delays and cost overruns getting Long Lake up and running to design specs. But CNOOC was willing to overlook those difficulties. It sought to alleviate concerns over state control that had split the Harper government’s members and constituents.

It made a number of promises to seal the deal, including moving its Western headquarters to Calgary, maintaining spending levels and Nexen’s staff, and listing its shares on the Toronto Stock Exchange.

After the deal finally closed, reality set in. CNOOC and other Chinese acquirers were hit with operational problems, delays, high costs and weak returns, leading to growing impatience back home. CNOOC’s Long Lake project remained troublesome, running under capacity, and suffering a deadly explosion that idled the project’s upgrader for years. CNOOC officials lamented that the Nexen operations were generating far-weaker returns than the company’s other assets.

The oil price crash in late 2014, and growing environmental concerns that contributed to pipeline proposals being delayed and shelved, made matters worse. China hung on even as companies from Norway, Britain, the U.S. and Thailand sold their oil-sands holdings to Canadian players. But CNOOC abandoned its commitments on spending and staffing levels.

Now, the bulk of the the incumbent oil-sands producers have pledged to invest in technologies to try to reach net-zero carbon emissions by 2050 as part of an alliance that CNOOC is not party to.

CNOOC wants to focus its energies on developing countries that offer lower costs and less red tape, Reuters reported. U.S. Gulf and shale operations could find ready buyers, depending on the price.

But the oil sands could be a tough sell, given their well-known history, environmental challenges – and a rule that says only domestic companies need apply.

The story has been corrected to show that CNOOC co-owns the Hangingstone project, but does not operate it.

Jeffrey Jones writes about sustainable finance and the ESG sector for The Globe and Mail. E-mail him at

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