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Nexen's Galaxy III offshore rig in the North Sea is pictured in this May, 2010, aerial view handout photo.

HANDOUT/Reuters

CNOOC Ltd. applied for Investment Canada approval for its proposed $15.1-billion acquisition of Calgary-based Nexen Inc. on Wednesday, setting the clock ticking on a key decision for the federal government in its relations with China.

The proposed deal has sparked concerns about growing investment by state-owned enterprises in the Canadian oil and gas sector, and Ottawa has pledged to take those concerns into account as it assesses the CNOOC-Nexen deal.

"I can formally now confirm that CNOOC has filed an application for review of its proposed acquisition of Nexen under the Investment Canada Act and I am conducting a review of the proposed investment," Industry Minister Christian Paradis said in an e-mailed statement Wednesday.

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The government has 45 days to review the proposed deal, but can take a 30-day extension, meaning CNOOC could expect an answer by mid-November. The company would have to agree to a further extension.

The Nexen board has endorsed the acquisition, which offers shareholders a 62 per cent premium on the stock price.

Responding to concerns about lack of Chinese reciprocity in allowing Canadian investments there, Prime Minister Stephen Harper indicated last week that the government will look beyond a narrow net benefit test in assessing the takeover's long-term impact.

In response to a question about the CNOOC deal Tuesday, Mr. Paradis said that Ottawa is eager to negotiate better access to foreign markets for Canadian firms and suggested reciprocity is a key concern.

Still , insiders say Ottawa is pursuing a parallel track, in which it will use the CNOOC acquisition to spur action from China on broader trade and investment issues but is unlikely to withhold approval for the Nexen deal on the basis of reciprocity.

The federal government is likely to demand a more robust capital expenditure plan from CNOOC to demonstrate that its acquisition of Nexen would represent a net benefit to the country.

Mr. Harper and several cabinet ministers have travelled to China to seek investment from companies there, despite lingering concerns about some Conservative ministers about the Communist regime. The Prime Minister argues that it is an urgent priority for Canada to diversify its energy export markets beyond the United States, to China and other fast-growing Asian countries.

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Chinese investment in the oil and has industry has been seen as a key component of that Asian strategy.

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