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Spy agency enters CNOOC-Nexen debate Canadian government warned that state-linked organizations could engage in ‘espionage and other foreign interference activities’ Gary Park For Petroleum News
The same day shareholders of Nexen needed only a few minutes to rubber-stamp the US$15.1 billion sale of their Calgary-based company to China National Offshore Oil Corp., CNOOC, the Canadian government’s spy agency dropped a bombshell.
In its annual report for 2011, the Canadian Security Intelligence Service, CSIS, warned that foreign investment by state-linked organizations could threaten Canada’s national security.
CSIS said in a report tabled in Parliament that state-controlled companies with ties to foreign intelligence agencies or hostile governments could use Canadian takeovers to engage in “espionage and other foreign interference activities.”
While CSIS did not name specific countries or companies, and its report was prepared long before CNOOC launched its bid for Nexen in June, its report further inflamed opposition to the deal.
The Canadian government’s foreign investment review agency has an initial deadline of Oct. 12 to deliver its recommendations on the CNOOC-Nexen transaction, although it can add another 30 days to the process.
The CSIS report was precisely the ammunition Canada’s opposition New Democratic Party has been looking for to bolster its argument for a full public hearing on the deal at a time when a new public poll showed 69 percent of 1,208 respondents want the government to reject the CNOOC-Nexen arrangement, while only 8 percent back the takeover.
Other governments involved Aside from Canada, the United States, the United Kingdom and the European Union all have the option of reviewing the deal because of Nexen’s widely-scattered operations.
Washington’s Committee on Foreign Investment in the United States is already conducting a probe based on Nexen’s 20 percent stake in the Gulf of Mexico, including the Shell-operated Appomattox discovery.
Robert Hormats, the U.S. undersecretary for economic growth, energy and the environment, while declining to comment specifically on CNOOC-Nexen, said the Obama administration welcomes investment in North America provided there are no national security concerns.
“Chinese investments (in the U.S.) would be even more welcome if we were convinced that the Chinese companies that are investing did not achieve competitive benefits by large amounts of government support, which give them an artificial competitive advantage here,” he said.
He said the U.S. government needs to be convinced that Chinese companies are operating in the U.S. for commercial reasons and not as part of a government policy objective.
Shareholders endorse proposal A United Kingdom government spokesman said CNOOC would have to pass an assessment to operate in the U.K. North Sea, adding an entrant into the area “would have to abide by the U.K.’s stringent oil and gas regime” by establishing that it was competent to run oil and gas operations.
Following the Nexen vote, with 97 percent of common shareholders and 87 percent of preferred shareholders endorsing the proposal, the company interim Chief Executive Officer Kevin Reinhart said CNOOC has strengthened its claim by promising to continue fully developing Nexen assets, to retain all Nexen employees, to establish a headquarters in Calgary to run all of CNOOC’s assets in North and Central America, and to keep a listing on the Toronto Stock Exchange.
“This transaction will in no way close the book on Nexen or on our way of doing business,” Reinhart said, but sidestepped questions on the public debate or the investment review.
Wavering in government circles However, the uneasy mood shows signs of spreading through government ranks, regardless of the repeated comments by Prime Minister Stephen Harper and senior cabinet ministers that foreign investment is vital if Canada is to attract the C$650 billion needed to grow its oil sands and shale deposits over the next decade.
But Harper has also hedged by insisting that China must demonstrate that it can be trusted to operate by the same rules as Canadian companies.
Minister of State for Finance Ted Menzies reflected the wavering within government circles by saying he had “heard many concerns, varying concerns, concerns about the resource industry, concerns about a foreign company investing in Canada.”
Liberal Party deputy leader Ralph Goodale said that if Nexen was purchased “what’s next? Is it Talisman, is it Cenovus, is it Encana? Where do these dominoes begin to fall and where do they stop?”
The uncertainty may have reached Beijing, which is dispatching its Commerce Minister Chen Deming to Canada to meet with government officials, although CNOOC said it did not expect Chen to raise the sensitive takeover bid.
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