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Harper edgy about takeovers Canadian PM says China’s political, economic systems are concern in investment reviews of CNOOC-Nexen, Petronas-Progress deals Gary Park For Petroleum News
The Canadian government has placed two proposed takeovers of Canadian-based petroleum companies by state-owned Asian enterprises under extended review, hinting at deepening unease within political circles.
If there was any doubt that the government is on edge, it was put to rest Oct. 12 when Prime Minister Stephen Harper, one of the strongest advocates of foreign investment in the energy sector, said China’s “very different” political and economic systems are a concern as his administration decides whether to approve the US$15.1 billion bid for Nexen by China’s CNOOC.
Seen as some of the most revealing insights into Harper’s thinking, they reinforced the views leaking out of government circles that senior cabinet ministers are wary of opening the door to CNOOC and others from China’s stable of national oil companies because of what are viewed as unfair Chinese business practices.
Harper, speaking to reporters at a conference in Senegal, said Canada is eager to build a trade relationship with China, but insisted those investments must be carefully scrutinized from a national security standpoint.
“The relationship with China is important,” he said. “At the same time it’s complex because the Chinese obviously have very different systems than we do, economic and political systems, and that’s why obviously some of these particular transactions raise concerns.”
“We will ensure as a government that we have not only a growing relationship with China but a relationship with China that is in Canada’s best interests,” Harper said.
Review extended His views coincided with an announcement by Industry Minister Christian Paradis that the deadline for a review under the Investment Canada Act of the CNOOC-Nexen arrangement has been extended from Oct. 12 to Nov. 12 and could face another 30-day delay at the request of CNOOC, although a final verdict is possible at any time during that period.
The delay matches a similar government decision to postpone its ruling on the C$5.5 billion acquisition of natural gas producer Progress Energy Resources by Malaysia’s Petronas.
CNOOC said it does not comment on the regulatory process and Nexen did not answer a request for its reaction.
Paradis said in a statement that extending the review period is “not that unusual,” explaining that the government needs more than its initial 45-day review period to “conduct a thorough and careful review of this proposed investment.”
He said the continued examination of CNOOC’s offer will cover six factors contained in the Investment Canada Act relating to government’s “guidelines on investment by state-owned enterprises.”
Call for rules There is also growing concern among Canadian energy leaders who are calling for rules to protect domestic ownership of the oil sands, although a new report by the Canadian Imperial Bank of Commerce said only 10 percent of the resource is in the hands of foreign state-owned companies, 7 percent of them Chinese.
However, CIBC concluded that Asian state-owned companies have an edge over western firms because of their access to lower-cost capital and their longer investment horizons, which could slow development of the oil sands.
Murray Edwards, chairman of Canadian Natural Resources, told energy leaders earlier this month there is an urgent need for the Canadian government to introduce “some ground rules” before approving CNOOC’s takeover.
He said that regardless of the oil sands sector’s desire to access foreign capital, there should limits on what Canada is willing to approve given the strategic importance of the northern Alberta bitumen deposits.
Net benefit, no risks The CNOOC-Nexen deal, which has already been approved by Nexen shareholders and Canadian courts, is being held up until the government is satisfied that it will generate a net economic benefit for Canada and does not pose any risks to Canada. United States regulators are also conducting a review linked to Nexen’s holdings in the Gulf of Mexico.
The Canadian Security Intelligence Service, in a report prepared before the two takeover bids were launched, warned that when companies with ties to foreign intelligence services or hostile governments try to acquire control over strategic sectors of the Canadian economy they can pose a threat to national security.
Debt-rating agency DBRS said the benefits of CNOOC gaining control of Nexen are “somewhat mixed” because the deal is not financially necessary for Nexen, which has a strong portfolio of global oil and natural gas assets and good access to capital markets.
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