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The Nexen building in downtown Calgary.TODD KOROL/Reuters

Top oil industry executives are asking Ottawa for rules to protect Canadian ownership of major oil sands companies from a flood of foreign investment expected in the sector.

Canada's oil sands contain the third-largest crude oil reserves in the world and are a strategically critical resource for the country, industry executives argue. They support the proposed $15.1-billion acquisition of Nexen Inc. by China's CNOOC Ltd., but note the deal signals growing foreign interest in the oil sands and insist Ottawa needs to ensure a substantial level of domestic ownership as more deals loom.

"I think it is important to get some ground rules in place before the next one," said Murray Edwards, CEO of Canadian Natural Resources Ltd., one of Canada's biggest energy companies and a major oil sands player. Mr. Edwards was among a large contingent of top executives gathered in Ottawa for a two-day session on how Canada should position itself to take full advantage of the growing economic power and affluence of Asia.

That power is centred in China, whose hunger for more opportunities in the Canadian oil patch is forcing Canada to shape its foreign-investment policy. At the Ottawa conference, oil executives were warned that a surge of direct foreign investment from China and other countries is just beginning to reach these shores and that. Canadians are unprepared for fundamental changes it will bring.

"There is a tidal wave that is heading out of China in the next decade and I don't think we're ready for it," said University of Toronto economist Wendy Dobson, noting Chinese firms will be looking to invest more than $1-trillion in the coming decade to acquire access to resources and related technology.

Most executives endorse the proposed takeover of Nexen, which has operations in the oil sands among other energy holdings abroad, but say it highlights the need for clear guidelines on big takeovers. Canadian Natural's Mr. Edwards said foreign investment is good for the energy industry and good for the country, but he added there should be limits to what Ottawa is prepared to approve given the strategic importance of the oil sands and major companies in the sector. Mr. Edwards said the CNOOC-Nexen deal is a "preliminary match" that is likely to get approved, though the government may opt to impose some conditions.

"Some Chinese investment in the oil sands would be in our country's interest," said Mr. Edwards, a leading industry figure with ties to Prime Minister Stephen Harper. "We want to make sure we have access to capital but, as a country, we want to ensure a strong Canadian presence in the oil sands." Mr. Harper said said that the government will set out guidelines for foreign acquisitions by state-owned enterprises when it announces its decision on the proposed Nexen takeover.

Executives did not stipulate which companies should be considered off limits to foreign buyers, but such a roster would likely include Canadian Natural, Suncor Energy Inc., and Cenovus Energy Inc., which is the largest producer using in situ - rather than mining - techniques.

Suncor chief executive Steve Williams said he too saw no reason for Ottawa to block the CNOOC deal, but that the government will have to grapple with the bigger issue of where to draw the line on foreign investment in key sectors.

"This one is a relatively easy decision and then we have to consider, at what point would we have a concern in the Canadian national interest," Mr. Williams said in an interview.

Cenovus CEO Brian Ferguson said he is a strong believer in the free market system but argued that Ottawa needs to ensure foreign investments are in the national interest and that Canada needs domestic champions in the oil industry.

In a report released Tuesday, the Canadian Imperial Bank of Commerce said Chinese firms own only 7 per cent of oil sands reserves and total state-owned enterprise ownership is a mere 10 per cent. However, the CIBC also concluded that Asian state-owned companies have a substantial competitive advantage over western firms, due to their lower cost of capital and longer investment horizons.

Felix Chee, Canada director for the China Investment Corp., said Chinese companies face barriers that don't exist for U.S. corporations.

"I don't think it's about foreign investment, I think it's about China," Mr. Chee said. And while Canada is perceived as a welcoming place for investment, he said "a million pair of eyes" are watching in China to see how Ottawa responds to the Nexen deal.

In a speech in Toronto, China's Minister of Commerce Chen Deming called for more "match-making" between Canadian and Chinese business and increased trade and infrastructure investment.

Addressing concerns about state-owned enterprises such as CNOOC, which are leading Chinese investments and acquisitions in Canada, Mr. Chen painted the buyers as "independent business players" with "a very good record of business."

In response to a question about whether China will offer reciprocity to Canadian investors, an official from the Ministry of Commerce said the government is pursuing an "opening up" policy that supports "experienced foreign investors," notably in the mining sector.

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