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The Nexen building is seen in downtown Calgary.

TODD KOROL/Reuters

Nexen Inc. and its Chinese suitor CNOOC Ltd. remain confident their blockbuster takeover deal will be approved by the end of the year, and are sticking with the timeline they rolled out in July despite federal-government moves stirring uncertainty about the approval process.

But Nexen investors are not so sure.

Investors, including a large contingent of hedge funds who gamble on takeovers, have pushed Nexen's stock price 13-per-cent below CNOOC's takeover offer of $27.50 (U.S.) a share. They show a similar level of doubt for Petronas' chances of winning Progress Energy Resources Corp., a deal the government rejected late Friday, although the Malaysian and Canadian firms are in Ottawa trying to revive the takeover. Nexen and Progress shares plunged Monday because of the government's decision on Petronas' hopes of expanding into Canada.

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Foreign buyers must prove their deals are a "net benefit" to Canada in order to obtain federal approval. Before last week there was little concern the Progress deal wouldn't win government approval, and despite a healthy public debate about the merits of the bid by state-controlled China National Offshore Oil Corp., Nexen shares had long traded close to the offer price.

"We continue to expect the arrangement to close in the fourth quarter of 2012," Nexen said Thursday in reporting third-quarter earnings. A Nexen spokeswoman did not provide an explanation for why the company remains confident.

Meanwhile, CNOOC, which offered $15.1-billion for Nexen in a friendly deal, gave the same reassurance earlier this week. "Our team is still working to obtain approval," said Zhong Hua, CNOOC's chief financial officer, speaking in Mandarin during a call for the Hong Kong-listed company's third-quarter earnings report. "We still expect to get the approval by the end of the year."

The federal government on Friday requested more time to review the Progress deal, but Petronas did not agree to an extension. The Conservatives, up against a deadline, were therefore left with no choice but to reject it. Prior to this decision, the spread between Nexen's closing price Friday and CNOOC's offer of $27.50 was only 7 per cent, hinting that the market was only somewhat skeptical the deal could be blocked. Progress' spread, previously just 1.6 per cent, now sits at 14.8 per cent. Progress was unavailable to comment because it cannot discuss its confidential negotiations with Ottawa, a spokeswoman hired by the company said.

"There is a big uncertainty," Norm MacDonald, a fund manager and resource specialist at Invesco Canada, said. His firm had a large stake in Nexen at the time of the CNOOC deal, and immediately began selling its position as hedge funds piled in to play the risk game. "We were really concerned about what happens if Industry Canada calls a time out."

Prime Minister Stephen Harper is in the midst of clarifying the opaque net benefit test.

Brian Ferguson, Cenovus Energy Inc.'s CEO, said it is important for the Conservatives to set clear ground rules and expectations.

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"One of the things that is also really important, incumbent on everyone, whether you are from Houston or London or Beijing or Mumbai, is that you behave and live by Canadian laws, Canadian regulatory systems, Canadian securities requirements, just as any Canadian corporation would have to. And I think that has to be a given," he said in an interview Thursday. "Those to me would be the fundamental principles on which we should all expect corporations to behave, regardless of where they come from."

Carolynne Wheeler is a freelance writer based in Beijing.

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