The wait is over, the decision reached. China can have their piece of the patch, sort of. For now. After months of speculation and feverish debate, Ottawa has given its tentative, halting, hesitant blessing to Chinese National Offshore Oil Co's (CNOOC) $15.1-billion takeover of Nexen. The Calgary-based oil and gas giant was first targeted by the Chinese earlier this year, however the deal was on hold, pending government review.
Scarcely could there have been more at stake, with the issues ranging from Canada's attitudes towards foreign investment, our economic ties to China, the national security sensitivities of the U.S., the fate of the oil sands, and our future as a producer of resources, or simply a supplier of them. Bundled together, Nexen soon became shorthand for a multi-billion-dollar question: What is Canada's place in the world?
Approved or rejected, Nexen stood unrivaled as Yahoo! Canada's Business Deal of the Year. The only question was what kind of deal would it be. On Dec. 9th we found out when Prime Minister Stephen Harper announced that he was prepared, more or less, to see Nexen bought by the Chinese, but that going forward, no longer would state-owned enterprises (SOEs) such as CNOOC be welcome to come shopping in the oil patch.
Well, not as a matter of course, at least.
"To be blunt, Canadians have not spent years reducing ownership of sectors of the economy by our own governments only to see them bought and controlled by foreign governments instead," Harper said, when outlining his decision. He made clear that the oil sands accounted for 60 per cent of all privately-controlled oil production in the world, and that he didn’t want to see foreign state companies completely transform the market, not in Canada.
Mitigating Harper’s position on Nexen is the fact that most of the company’s assets are offshore, either in the Gulf of Mexico, the North Sea or the Middle East. Had CNOOC’s target been Suncor, the biggest player in the patch, with the vast majority of its operations here, most analysts believe there would been have been no chance of approval.
After all, this is the same government that scuppered BHP Billiton’s plans to buy PotashCorp, the world’s biggest potash producer, two years ago. The Anglo-Australian mining giant made a US$38.6-billion offer for the Saskatchewan company, only to see Ottawa reject it on the grounds that there wasn’t enough 'net benefit' for the country. As potash is a critical ingredient in fertilizer, an essential component in agriculture, of course, the company was deemed a vital Canadian asset.
What makes the Nexen deal unique was the parties involved, the timing and the size of the deal. As Derek Burney and Fen Osler Hampson argued recently in the Globe and Mail, it is clearly in Canada’s interests to have closer business ties with the fastest-growing, second-largest economic engine in the world.
However, the question of equity and fairness is at issue here. If the tables were turned and it was Nexen seeking to buy CNOOC, a state-owned institution, would China permit the purchase? Not a chance. There is no reciprocity here, nor is there a hint of any emerging in the near term. Indeed, CNOOC’s state-backing is at the root of many concerns preceding the deal. Chinese SOEs are increasingly using their essentially limitless funds to gobble up key resource interests around the world. The capacity for competitors to do the same is seen as increasingly constrained.
Yet, if the analysis was confined strictly to the merits of this deal, it’s unclear why it should have been blocked. In a recent column, Preston Manning noted that there is nothing in CNOOC’s environmental, social or governance history to suggest the acquisition would harm Canada; nor do most analysts feel that Nexen is too strategic an asset to fall outside Canadian control.
In fact, some argue that the Chinese buying a major player like Nexen sends a much-needed message to the U.S. that there is a global market for our oil and gas reserves and that we’re committed to securing the highest prices, regardless of nationality.