China National Offshore Oil Corp (CNOOC) believes its proposed $15.1 billion takeover of Canadian oil producer Nexen Inc. (TSX & NYSE:NXY) should go ahead without major hiccups as talks with provincial leaders reaffirmed the values of China as an investor in its oil sands sector, the Globe and Mail is reporting.
Citing unidentified sources, the paper said that CNOOC, which has won approval from Nexen shareholders for the acquisition, has specially structured the deal to meet Canadian regulations and benefit the country. It adds that none of the premiers who have held meetings with CNOOC executives have voiced any concern about the proposed deal.
The CNOOC-Nexen deal is now under federal government review to determine if the takeover represents a so-called net benefit to the Canadian economy, as required under the country’s foreign-investment laws.
Since CNOOC made an official application to the Canadian government in late August, mixed messages about the authorities’ position on the subject have generated increasing among investors. Shares in Nexen reflected the market tension Wednesday, closing at $24.91 among fears that public opposition will convince the government to block the deal.
Senior Conservative officials, led by Prime Minister Stephen Harper, have suggested the issue of market reciprocity — or guarantees that Canadian investors will get access to Chinese assets — could play a key role in the ruling.
Truth is the country’s ruling Conservative Party is split over the matter and Harper has been left with difficult final call to make, as an analysis by Reuters explains:
A green light, still viewed by many as likely, would allow China’s biggest ever foreign takeover, extend China’s foothold in Canada’s crude-rich oilsands – an area with the biggest proven resources of energy outside Venezuela and Saudi Arabia — and help Beijing fulfill its drive for better access to energy resources to fuel the world’s second-largest economy.
A “no”, or conditions on the deal that were too onerous for CNOOC, would cut the takeover premium on Canadian resource stocks, and likely stem Chinese investment in the energy patch, as well as damaging Canada’s already dented reputation as a friendly jurisdiction for foreign investment.
It would also infuriate Beijing, which might make the Chinese market a less welcoming destination for Canadian exporters. When U.S. opposition thwarted CNOOC’s attempt to buy California-based Unocal Corp. in 2005 it angered Chinese officials and strained Sino-U.S. relations.
But Canada’s has to also consider the consequences of upsetting its Southern neighbour, whose pressure could come into play at the time of the final decision.
The most recent U.S. show of disapproval came a week ago, when Nebraska Republican Congressman Lee Terry urged President Obama in a blog to “Oppose CNOOC-Nexen merger, approve Keystone”:
Recently, Chinese state oil company, CNOOC, announced its intention to purchase Canadian oil company, Nexen, for $15.1 billion in cash. I have deep concerns about this merger and what it means for American national security and energy security in the future.
…With the purchase of Nexen, China will control a major North American oil company. China will firmly be positioned in our front and backyard.
Should the biggest ever foreign investment in the North American country get the green light, CNOOC has promised it will make Calgary the headquarters of its North and Central American operations, will join Canada’s main equities market, the Toronto Stock Exchange and will keep current Nexen employees.