* Canada approves CNOOC bid for Nexen, Petronas Progress buy
* Ottawa to impose stricter conditions on foreign investment
* Canadian dollar, Nexen shares soar
(Adds details, background)
By Michael Erman and David Ljunggren
NEW YORK/OTTAWA, Dec 7 (Reuters) – Canada approved China’s
biggest ever foreign takeover on Friday, the $15.1 billion bid
from CNOOC Ltd for energy company Nexen Inc.,
but drew a line in the sand against future buys by state-owned
enterprises.
In a fierce defense of a tough, new foreign investment
framework, Prime Minister Stephen Harper said Canada would not
deliver control of the oil sands – the world’s third largest
proven reserves of crude – to a foreign government.
The ruling, anxiously awaited by investors and politicians
alike, followed months of heated debate about how much of
Canada’s energy sector could and should be absorbed by companies
run by other nations.
The bid triggered unusually open dissent among legislators
in the ruling right-of-center Conservatives, many of whom were
particularly nervous about the idea of allowing China to gain
control of the oil sands.
Canada said yes to this deal, but will not do so next time.
“To be blunt, Canadians have not spent years reducing the
ownership of sectors of the economy by our own governments, only
to see them bought and controlled by foreign governments
instead,” Harper told reporters after Ottawa gave the deal the
green light, along with approval for the less controversial
takeover of gas company Progress Energy Resources Corp
by Petronas of Malaysia.
“Foreign state control of oil sands development has reached
the point at which further such foreign state control would not
be of net benefit to Canada,” he added.
CNOOC’s bid had raised huge questions for Harper’s
Conservative government, which sought both to appear open for
investment and to diversify Canadian energy exports toward Asia
and away from the United States.
The strict new approach restricts state-owned enterprises to
minority stakes in Canadian enterprises except in what Harper
described as “exceptional circumstances”.
It will raise questions about how Canada can raise the C$650
billion ($657 billion) investment it says it needs in the
natural resources sector in the next decade alone. Ministers say
much of the money will have to come from abroad and cash-rich
China is an obvious source.
Analysts said the new rules could please market operators
who complain Ottawa was too vague about the kinds of foreign
investment it wanted. Investment Canada, part of the industry
ministry, must decide if takeovers are of net benefit to Canada,
but critics say the process is opaque.
The Conservatives shocked markets in October 2010 by
unexpectedly blocking a bid by BHP Billiton Ltd
for Saskatchewan-based fertilizer maker Potash Corp.
“This approval helps overcome some of the stigma that was
associated with Investment Canada after the BHP rejection. I
think it is good news for the perception of Canada as a
destination for capital,” said Oliver Borgers, a partner at
McCarthy Tetrault in Toronto.
MORE INVESTMENT
Harper said he was confident that other firms would want to
invest in the oil sands, the world’s third largest resource of
crude after Saudia Arabia and Venezuela.
“What we’re doing here is preventing a situation which I see
developing, I have been worried about for a while now, … where
in the name of an open, globally competitive economy, we could
see the transformation of our economy into a state-run economy,
just a state-run economy not (run) by our government,” he said.
The main opposition New Democrats, who had wanted the Nexen
deal blocked, said Harper had not done enough to clarify the net
benefit test.
“What the decision today does is send a very clear signal
that these types of transactions, that these kind of takeovers
will be approved,” said energy spokesman Peter Julian.
Nexen, long viewed as a takeover target, is involved in oil
sands in Canada and offshore production operations around the
world. It was an ideal target for CNOOC, especially since no
Canadian firms had tried to buy it.
Petronas offered C$5.2 billion ($5.3 billion) for Progress,
a mid-size gas producer. Both suitors offered hefty premiums.
The shares of both takeover targets went on a wild ride,
slumping late in the Canadian trading session on speculation
that an after-market announcement could be negative.
Nexen’s New York-listed shares then surged in after-hours
trading on a Reuters story that the deal had been approved. The
Canadian dollar firmed.
CNOOC COMMITMENTS
In approving the deal, Canada said CNOOC made significant
commitments on transparency, employment and capital investments.
“I realize there were a lot of politics that went into this
thing … I think they probably played it very well. By pushing
back quite a bit they were probably able to get concessions in
both these deals, in Nexen and in Progress,” said Keith Moore,
managing director at MKM Partners LLC in Stamford, Connecticut.
The acquisition will give CNOOC control of Nexen’s 43
percent stake in the Buzzard field in the North Sea, the most
important contributor to the crude blend used to set the Brent
crude price that serves as the international oil price
benchmark.
Nexen also has oil production from Yemen, offshore West
Africa and the Gulf of Mexico.
CNOOC also gains full control of Nexen’s Long Lake oil sands
project in northern Alberta, properties containing as much as
six billion barrels of recoverable crude and a 7.2 percent stake
in the Syncrude Canada Ltd joint-venture.
PROGRESS REJECTION
The government’s decision on the Petronas bid for Progress
reversed an initial rejection by Industry Minister Christian
Paradis, who gave the Malaysian state-owned energy company a
chance to make new representations.
The companies, which already have a joint venture in the
Montney shale gas region of British Columbia, said this week
they are advancing an C$11 billion liquefied natural gas plant
on Canada’s West Coast. They held out the prospect of a bigger
project if the takeover is approved, because Petronas would have
access to all of Progress’s gas reserves.
CNOOC also asked the U.S. government to review its bid for
Nexen’s offshore oil assets in the Gulf of Mexico. CNOOC said
last week that the review was still underway, and a Washington
spokesman declined further comment on Friday.
If the powerful and secretive Committee on Foreign
Investment in the United States finds national security issues
with the deal, it could require divestitures or other
security-control agreements.
($1=$0.99 Canadian)
(Additional reporting by Solarina Ho, Euan Rocha and Alastair
Sharp in Toronto, by Louise Egan and Randall Palmer in Ottawa
and by Jeffrey Jones and Scott Haggett in Calgary; Editing by
Janet Guttsman)
