A woman walks past a poster showing an offshore work platform from the China National Offshore Oil Corp (CNOOC) next to its headquarters building in Beijing, December 10, 2012.JASON LEE/Reuters
Canada's natural resources minister said CNOOC Ltd.'s bid for Nexen Inc. likely would not have been approved if it had faced the higher hurdles for foreign takeovers announced Friday.
Natural Resources Minister Joe Oliver told reporters Monday that foreign investments from state-controlled firms outside the oil sands will face sharper scrutiny under the government's new rules.
"It would have been difficult because it would have required – it would have had to have been an exceptional situation," he said. Mr. Oliver declined, however, to define what classifies as exceptional circumstances, instead saying that is up to the Minister of Industry.
"In respect to the oil sands, the percentage of state-owned, Chinese-owned, investment in the oil sands in terms of future production will still be under 10 per cent [after the Nexen deal] and so we didn't feel with the acquisition the number was excessive. But new rules are now in place," Mr. Oliver said.
Ottawa approved CNOOC's $15.1-billion (U.S.) takeover of Nexen Friday, along with Malaysia's Petronas $6-billion deal to buy natural gas company Progress Energy Resources Corp. The deals sparked controversy, with critics fretting Canada was giving up too much control of its natural resources.
The Nexen and Progress deals were evaluated under the old rules, but the debate over state-controlled investments prompted Prime Minister Stephen Harper to revamp the rules for foreign state-owned companies investing in Canada. He made it clear it would now be difficult for state-controlled firms to buy an entire oil sands outfit. Mr. Oliver declared Canada "open for business," stressing joint ventures are still welcome. At the same time, the natural resources minister said: "Not all investments are created equal."
Mr. Oliver clarified how the guidelines would apply to foreign investments from state-owned enterprises (SOEs) outside the oil sands. The government will "strengthen scrutiny" under the Investment Canada Act in these situations as well.
"The minister of industry will closely examine the degree of control or influence a state-owned enterprise would likely exert on Canadian businesses being acquired," he said. "The degree of control or influence an SOE would likely exert on the industry in which the Canadian business operates and the extent to which a foreign state is likely to exercise control or influence over the SOE acquiring Canadian businesses."
Canada's best interest must be protected, he said, adding the burden of proof is on the companies proposing takeovers.
"Non-controlling minority interest in Canadian businesses proposed foreign SOEs, including joint ventures, will continue to be welcome in the development of the oil sands and Canada's economy. Transactions will continue to be reviewed by the minister on a case-by-case basis."
While the government has signaled it is cool on SOEs taking controlling stakes in energy projects, Mr. Oliver stressed private corporations from foreign companies are welcomed.
"The Canadian government strongly encourages capital investments in Canada, especially from the private sector....That is why we have not made any changes to the rules for foreign private sector investments," he said. "We will, at the same time, advance trade and investment agreements to achieve reciprocal treatment abroad for Canadian investors."
Meanwhile, Alberta Energy Minister Ken Hughes said the new rules may reduce foreign investment in the oil sands and drive up the cost of capital for remaining players.
"There is the potential now for less investment going into the oil sands," Mr. Hughes told a conference in Calgary. The minister said he worries that Alberta is already a high-cost jurisdiction for producing crude, and the possible increase in the cost of capital would reduce the competitiveness of the oil sands.
However, he acknowledged that the Harper government was responding to widespread fears that companies owned by foreign governments were poised to gain an undue control over oil sands production, and that Ottawa had to respond to those fears to ensure broad public support for oil sands productions and the pipelines necessary to get the crude to new markets.