(All figures in U.S. dollars)
* Ottawa wants Chinese investment in energy patch
* Gov't keen to restore reputation after Potash affair
* Critics fear deal would give China too much energy control
By David Ljunggren
OTTAWA, July 23 A friendly, $15.1 billion
Chinese bid for a big Canadian energy company is in line with
government pleas for foreign money to develop the costly tar
sands of northern Alberta, a possible pointer to the eventual
approval of the deal.
Ottawa said only that it would review state oil company
CNOOC's bid for Nexen Inc, based on its laws
on foreign investment. But lawyers, analysts and insiders said
there were good reasons for the deal to go ahead, and fewer
reasons to block it.
"It so far appears to be a mutual two-way street. Canada has
made it clear that they are looking for Chinese investment ...
and China is now in a way reciprocating that interest by
investing in a Canadian company," said Oliver Borgers of law
firm McCarthy Tétrault LLP in Toronto and a specialist in
antitrust law and foreign investment reviews.
"It appears to want to do a lot for that Canadian company in
terms of increasing its size, its footprint, its presence
globally, all of the things that would be music to the ears of
the Canadian government."
Approval of the deal would go a long way to restore a
Canadian foreign investment climate that the government dented
in 2010 when it rejected $39 billion attempt by Australian miner
BHP Billiton Ltd to buy fertilizer maker Potash Corp
. The Conservative government said the Potash takeover
would not bring a net benefit to Canada and it vetoed the deal.
But Potash Corp was a huge player - and a big employer - in
the politically significant province of Saskatchewan, while
Nexen's assets are far more widely distributed.
Nexen is active in Columbia, Yemen, the North Sea and the
United States as well as in Canada, and the majority of its
production and cash flow come from outside Canada.
Outlining its offer early on Monday, CNOOC said it would
keep Nexen's Canadian operations and seek a listing for its
shares on the Toronto stock exchange.
"This is a friendly deal ... there is a great deal of
forethought given to the kind of presence in Canada that the
government is seeking," a source close to the deal told Reuters.
"The (Canadian) government tends to look for generation of
economic activity in these deals. ... If that's the gauge --
generation of activity and development -- then this I think is a
pretty compelling proposition."
Canadian Prime Minister Stephen Harper went to Beijing in
February this year, partly in a bid to sell Canadian oil to
China, and he stressed the need to diversify markets and reduce
reliance on the United States. Without foreign money,
development of the oil sands would lag, the government says.
Even so, Chinese investment in Canadian energy firms is
sensitive politically, and Ottawa will want to be sure that the
bid is of net benefit to Canada.
A big challenge for Harper will come from critics who say
Canada has no business allowing a Chinese state-owned enterprise
to snap up a Canadian resource, and a section of the
Conservative Party itself remains suspicious of China.
The left-leaning Council of Canadians activist group said
the proposed takeover would give China a direct say over the oil
sands and proposed pipelines carrying crude to West Coast ports
and Asia-bound tankers.
"The Canadian government should say no to this deal,"
council chairwoman Maude Barlow said in an e-mailed statement.
The source close to the deal dismissed the suggestion that
a Chinese state-owned enterprise might bid for a Canadian energy
company for anything other than strictly business reasons.
CNOOC "is manifestly a commercial entity, this company is
publicly listed, it trades on two of the biggest stock markets
on the world. This company has provided above-average returns to
shareholders and seeks to sell its output on the world market at
the highest possible price," the source said.
Gordon Houlden, a former Canadian diplomat with extensive
Chinese experience and head of the University of Alberta's China
Institute, said it would be inconsistent of Canada to block the
deal so soon after Harper's visit to China.
"Should there not be a massive negative (domestic) reaction
... I think this goes through," he told Reuters.
But Houlden said Ottawa would have to think carefully about
the precedent it might set by allowing CNOOC to buy Nexen.
"I do not believe the government would contemplate, let's
say, 10 purchases of this order, which would be well within
China's means," he said.
"If you (spent) $30 to $50 billion you could take out almost
all of the largest Canadian energy companies and I don't think
that it would be the government's plan to have a wholesale
transfer of ownership from Canada to China of those assets."
The deal is subject to two separate Canadian reviews, from
the Competition Bureau, and from Industry Minister Christian
Paradis, who must decide whether to permit the deal or block it,
either on national security grounds or because it is not of net
benefit to Canada.
(Additional reporting by Euan Rocha; Editing by Janet Guttsman
and Frank McGurty)