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CNOOC-Nexen deal under U.S. pressure Schumer presses Obama to use its approval of the takeover to force changes in Chinese policy; Hong Kong firm under investigation By Gary Park For Petroleum News
The proposed blockbuster takeover of Canada’s Nexen by China’s CNOOC is entangled in a web of U.S. politicians and securities regulations.
Top-ranking Sen. Charles Schumer (D-NY) wants the Obama administration to use the $15.1 billion deal as leverage to solve long-standing trade and investment issues with China.
Compounding that challenge, the U.S. Securities and Exchange Commission has obtained a court order to freeze the assets of traders using accounts in Hong Kong and Singapore, alleging they pocketed more than $13 million by trading in advance of the July 23 acquisition announcement.
The SEC alleges that Hong Kong-based firm Well Advantage Ltd. and other unknown traders bought shares of Nexen based on confidential information ahead of the deal.
Well Advantage purchased about 830,000 Nexen shares on July 19, generating an unrealized profit of more than $7 million, while the other traders reportedly used accounts in Singapore to buy 670,000 shares, selling them for “illicit profits” of more than $6 million.
The SEC’s emergency court order freezes the traders’ assets, valued at more than $38 million, and bars them from destroying evidence.
A “window of opportunity” Schumer in a letter to Treasury Secretary Timothy Geithner, who also chairs the Committee on Foreign Investment in the U.S., said that although he does not oppose the takeover of Nexen’s global assets on its merits the U.S. should not pass up an opportunity to apply pressure on China to open up its markets and treat trading partners equally.
The bulk of Nexen’s assets are tied up in Alberta’s oil sands and British Columbia’s shale gas plays. About 10 percent of the value is assigned to the U.S. Gulf of Mexico, with other properties held in West Africa and the United Kingdom’s North Sea.
The deal needs approval from regulators in Canada, the U.S., China and possible the European Union.
“It is rare that we have so much leverage to exert upon China,” Schumer wrote. “We should not let this window of opportunity pass us by.”
Schumer was one of the most vocal critics of CNOOC’s proposed merger in 2005 with Union Oil Co. of California, a deal that fell apart under political pressure.
The purchase of U.S. assets by state-controlled foreign companies can be blocked on national security grounds.
Like Canadian regulators, a division of the U.S. Treasury Department has the power to impose conditions on foreign acquisitions.
“At some point, we have to put our foot down over China’s refusal to play by the rules of free trade,” said Schumer.
He argued China should be forced to join a government procurement agreement, simplify its review system for foreign investments in China, step up enforcement of intellectual property infringements and require its provincial and municipal governments to make certain reforms.
Petronas hikes Progress bid In a separate, surprising development involving a state-owned bid for Canadian natural gas assets, Malaysia’s Petronas has hiked its cash bid for Progress Energy Resources by 8 percent to C$5.16 billion in an effort to fend off a rival offer.
It raised its price to C$22 a share from June’s original offer of C$20.45, according to a statement by Progress.
The latest offer is 90 percent above the Calgary-based company’s closing price on June 27, the day before Petronas disclosed its offer.
Michael Tims, chairman of Calgary-based investment bank Peters & Co., said that while the “price looks very high relative to how natural gas is trading,” the Progress shale gas holdings in British Columbia are uniquely placed to support planned liquefied natural gas export projects.
Art MacNichol, chief financial officer of Progress, declined to identify the other bidder, citing confidentiality agreements.
A regulatory filing said Progress had previously rejected two other bids from a “multinational oil company.”
Other key players close to the Progress assets include Royal Dutch Shell, Imperial Oil, Apache and Encana.
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